Photographer: Tomohiro Ohsumi/Bloomberg

Risk of Japan Recession Seen by Economists in Data Torrent

  • Japan's industrial output has been volatile in recent months
  • Analysts are optimistic about improvement by year's end

Economists are lowering their projections for Japan’s third-quarter gross domestic product after a batch of weak data, with some signaling that the economy may have contracted and pushed the nation into another recession.

While growth is expected to pick up in the current quarter, news of a recession would be sure to increase pressure on Prime Minister Shinzo Abe and central bank Governor Haruhiko Kuroda to boost fiscal and monetary stimulus. 

GDP shrank by an annualized 0.3 percent in the three months through September following a 1.2 percent drop in the period ended in June, according to latest median of forecasts compiled by Bloomberg. That compares with earlier projections for third-quarter expansion of 0.6 percent in a poll conducted from Oct. 2 to Oct. 7.

In the torrent of data since then, Kuroda’s core price gauge fell, household spending unexpectedly dropped, vehicle production declined, retail sales slipped and imports fell while exports stagnated. Industrial output advanced 1 percent in September from the previous month, yet wasn’t enough to make up for the contractions in August and July.

“Even with solid profits, Japanese companies remain cautious about business investment because worries about China’s economy and the plunge in stocks in August have heightened uncertainty in the global economy,” said Yusuke Shimoda, an economist at the Japan Research Institute in Tokyo.

Shimoda cut his GDP forecast to minus 0.4 percent from growth of 0.6 percent, partly because of weakness in capital expenditure data that was contained in the Oct. 29 report on industrial output. The government releases its GDP figures on Nov. 16.

Nomura Securities Co. economist Yoshiyuki Suimon, who also cut his forecast for third-quarter GDP to a contraction of 0.4 percent, cited a draw-down in the amount of goods stockpiled by companies in warehouses. He’s expecting a rebound in spending by companies and consumers in the three months ending Dec. 31.

Japan Research’s Shimoda said the government is likely to compile a package of additional spending in coming months. Heizo Takenaka, a former economy minister who serves on a government panel on competitiveness, has suggested spending of about 5 trillion yen ($41 billion). Numerous reports in the Japanese press have said an extra budget of 3 trillion yen or 3.5 trillion yen is likely.

Abe has ordered Economy Minister Akira Amari to compile measures this month to help achieve his goal of expanding Japan’s nominal GDP by 20 percent to 600 trillion yen over five years.

Whether the Bank of Japan would be prodded into further action is difficult to tell after Kuroda and his board kept policy unchanged last week. Economists remain divided on this.

While the BOJ said risks to the outlook for the economy and prices are skewed to the downside, the median estimate from its board members is for real GDP to expand by 1.2 percent in the 12 months through March 2016.

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