Japan Growth May Slow to Half Previous Pace as Exports Wane

Japan’s economy probably grew last quarter at half the pace of the previous three months, a slowdown analysts predict is deepening as Europe’s debt crisis and the yen’s gains erode exports.

Gross domestic product expanded an annualized 2.3 percent in the three months through June, compared with 4.7 percent in the first quarter, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Aug. 13.

The slump may deepen this quarter, with exporters from Sony Corp. (6758) to Canon Inc. (7751) in the past month cutting profit projections because of waning overseas growth. As Prime Minister Yoshihiko Noda prepares to push a sales-tax increase through the Diet today, pressure may rise on policy makers to consider a supplementary budget and monetary stimulus to shore up demand.

“We need to be alert to the downside risks to the economy, especially in the third quarter,” as the global slump spills over to Japan, said Kohei Okazaki, an economist at Nomura Securities Co. in Tokyo, a unit of Japan’s largest brokerage. “There’s a possibility monetary and fiscal stimulus will be implemented by the end of the year.”

A separate survey of analysts by Bloomberg News shows growth will further cool to 1 percent this quarter.

Monetary Easing

The Bank of Japan refrained from easing policy at a board meeting yesterday. Central banks around the world have been supporting their economies as Europe’s woes deepen. The Philippines unexpectedly cut interest rates a third time this year to a record low on July 26, and the U.S. Federal Reserve said on Aug. 1 that it will pump fresh stimulus if necessary.

Sony last week cut its profit forecast after gains in the yen eroded overseas earnings and sales of consumer electronics weakened. Canon, the world’s largest camera maker, also cut its full-year profit estimate because of a stronger yen and expectations for weaker growth in the U.S., Europe and China. Sony and Canon get about 70 percent and 80 percent of sales revenue from outside Japan, respectively.

Adding to the woes of manufacturers is the yen’s 6.4 percent advance against the dollar since mid-March, which is cutting profitability. The yen traded at 78.58 per dollar as of 9:54 a.m. in Tokyo, hovering close to last year’s postwar high of 75.35. Exports slid for the first time in four months in June, falling 2.3 percent.

Slowing Orders

A report yesterday showed that machinery orders, an indicator of future capital spending, missed analysts’ forecasts, rising 5.6 percent after falling in May the most in more than a decade.

“It’s unavoidable that Japan’s recovery will lose steam toward the end of the year,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “The uncertainties over the global economy are increasing and there’s a chance for the yen to strengthen further,” supporting the case for further monetary easing.

Net exports, or shipments less imports, were probably unchanged in the second quarter, failing to contribute to the nation’s 0.6 percent quarter-on-quarter expansion, analysts said in a Bloomberg News survey. Overseas demand added 0.1 percentage point to growth in the first three months of the year, according to a government report.

IMF Projections

The International Monetary Fund lowered its 2013 global growth forecasts last month on Europe’s debt crisis and slower expansions in emerging markets. Even with the slower growth, Japan’s economy probably maintained the fastest expansion among its Group of Seven peers in the April-to-June period as rebuilding from last year’s earthquake and government incentives to purchase fuel-efficient cars bolstered demand.

Mizuho Securities Co. expects the car subsidy program to expire this month, which may increase the nation’s reliance on overseas demand for growth. Noda said in parliament on July 9 that he will respond with measures including an extra budget to help the economy if needed.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Scott Lanman at slanman@bloomberg.net

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