Japan’s Growth Seen Peaking as BOJ Pressed to Stimulate

Japan’s Growth Seen Peaking as BOJ Pressed to Add More Stimulus
Buildings in Osaka, Japan. In Kansai, which accounts for about 20 percent of the economy and is the nation’s second-most important industrial heartland, consumers face the biggest limit on power use, the government says. Photographer: Tomohiro Ohsumi/Bloomberg

Japan’s economic growth probably peaked in the first quarter and analysts forecast the pace of expansion will halve by year-end as the boost from earthquake reconstruction fades.

Gross domestic product rose an annualized 3.5 percent, compared with a 0.7 percent contraction in the final three months of 2011, according to the median estimate of 27 economists surveyed by Bloomberg News. The Cabinet Office will give the number at 8:50 a.m. in Tokyo tomorrow.

Persistent deflation and the yen’s 5 percent climb against the dollar since mid-March may encourage politicians to keep pressing the Bank of Japan to add more stimulus to support growth in the world’s third-biggest economy. As the boost from rebuilding wanes, the nation will increasingly depend on exports just as Europe’s sovereign-debt crisis and a slowdown in China cloud the outlook for global demand.

“The pace of a slowdown later this year will depend on how the European debt crisis will affect the yen and exports,” said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. in Tokyo and a former BOJ official. “The Bank of Japan may have little choice but to ease more -- once every three months.”

Machinery orders fell a less-than-estimated 2.8 percent in March from the previous month, a Cabinet Office report showed today. An increase for the quarter as a whole and expectations for another gain in the three months through June indicate limits on how much the economy may slow.

Stocks, Currency

Europe’s woes may fuel demand for the yen as a haven, with the currency trading at 80.30 per dollar as of 9:19 a.m. in Tokyo after climbing to a postwar high of 75.35 in October.

Japanese equities fell today as public and political opposition to austerity measures in Greece add to the risk that the nation will exit the euro, disrupting markets and the global economy. The Nikkei 225 Stock Average declined 0.4 percent as of 9:06 a.m. in Tokyo.

Japan’s growth will probably slow to a 2.2 percent pace in the second and third quarters, and 1.7 percent in the final three months of the year, according to the average forecast of 40 economists in a survey by Japan Center for Economic Research released yesterday.

“The key is to what extent overseas demand will be able to support the economy when the effect of reconstruction demand starts to wane,” said Norio Miyagawa, a senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “There’s a high chance of additional monetary easing in July.”

More Stimulus

The central bank increased its asset-purchase program for a second time in three months on April 27. On the same day, BOJ board members predicted that consumer prices will advance 0.7 percent in the year to March 2014, compared with the central bank’s 1 percent price goal set in February.

Some lawmakers are urging more aggressive easing to offset fiscal tightening as Prime Minister Yoshihiko Noda struggles to convince lawmakers to double a 5 percent sales tax as part of efforts to contain the world’s largest public debt burden.

Noda has pledged more than 20 trillion yen ($250 billion) to rebuild areas devastated by last year’s earthquake and tsunami. Government incentives to buy fuel-efficient cars such as tax waivers and rebates also gave a boost to consumer spending last quarter, lifting seasonally adjusted retail sales in January and February.

The government may end the subsidy program in June or July, weakening consumer spending, according to Junko Nishioka, chief economist at RBS Securities Japan Ltd. in Tokyo.

Energy Constraints

Constraints on energy use and prospects for more gains in the yen made add to economic challenges. Japan may impose rolling blackouts and electricity-savings targets this summer as utilities struggle to power factories and light homes with as many as 50 atomic plants offline.

In Kansai, which accounts for about 20 percent of the economy and is the nation’s second-most important industrial heartland, consumers face the biggest limit on power use, the government says. The western region is home to Osaka, Kyoto and Kobe cities as well as the headquarters of Panasonic Corp., Sharp Corp. and Nintendo Co.

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