Cold Weather Probably Snapped Japan Out of Recession: Economy

Japan’s economy probably emerged from its third recession in five years last quarter as cold weather boosted consumption, bolstering Prime Minister Shinzo Abe’s campaign to revive growth.

Gross domestic product data due tomorrow will probably show an annualized 0.4 percent expansion in the three months through December, according to the median forecast in a survey of 32 economists. Banks including JPMorgan Chase & Co. and Citigroup Inc. raised their forecasts from a contraction this month after a gauge of consumption rose.

Abe’s challenge is to induce a sustained economic recovery as he seeks to end deflation through more aggressive easing by the Bank of Japan. With current BOJ Governor Masaaki Shirakawa set to step down next month, the premier may increase pressure for more monetary stimulus this year as a planned sales tax rise in 2014 is predicted to drag on growth.

“Japan’s economy will likely see a solid recovery in the coming months,” said Yuichi Kodama, Tokyo-based chief economist at Meiji Yasuda Life Insurance Co., Japan’s third-largest life insurer. “Still, consumption may cool after the sales tax rise, and the new BOJ governor will probably have to show a stronger tone on easing.”

Consumer spending probably rose 0.5 percent in the October-December period from the previous three months, according to the Bloomberg News survey. The Cabinet Office’s Synthetic Consumption Index, a gauge economists use to forecast private spending, rose in the quarter.

Winter Clothing

Domestic same-store sales at Uniqlo, Japan’s largest clothing retailer, rose 13.7 percent in November and 4.5 percent in December as lower temperatures boosted demand. Tokyo temperatures averaged below the 30-year median on 26 of 30 days in November and 24 of 31 days in December, according to data compiled by Bloomberg.

Investors’ expectations for more monetary easing have pushed the Nikkei 225 Stock Average up by about 31 percent in the past three months, while the yen has fallen about 15 percent against the dollar in the same period. The currency appreciated 0.7 percent to 92.87 per dollar at 1:14 p.m. in Tokyo while the Nikkei dropped 1.1 percent.

The yen strengthened for a second day after an unidentified Group of Seven official said Japan will be discussed at the Group of 20 meeting amid concern the currency’s moves had been excessive. Finance ministers and central bankers from the G-20, which includes the G-7 and emerging markets such as Brazil, China and India, meet in Moscow on Feb. 15-16.

Higher Wages

Abe said in parliament last week that he would ask businesses that are benefiting from monetary easing to pass on profits in the form of higher wages for workers, and yesterday in a meeting with business leaders said companies with improving results should consider higher pay.

Mazda Motor Corp., whose shares have surged nearly 170 percent in the past three months, last week more than doubled its net income forecast to 26 billion yen ($277 million) in the year ending March. Japan Tobacco Inc., Asia’s largest listed tobacco maker, raised its profit forecast as a weaker yen boosts the value of overseas earnings.

The economy will grow 2 percent in the fiscal year from April and 0.3 percent in the year after that, according to the average forecast in a survey by the Japan Center for Economic Research released yesterday.

Consumer Confidence

Elsewhere in the region, Australian consumer confidence in February surged by the most since September 2011 as interest-rate cuts gain traction. India will release trade data for January, while Indonesia may say its current account deficit widened last quarter, a Bloomberg survey showed.

Data to be published in Europe may show the region’s industrial production rebounded in December, while the Bank of England will publish the latest economic outlook in its Inflation Report in London today.

In the first State of the Union address since winning re-election, U.S. President Barack Obama called for raising the federal minimum wage to $9 an hour and proposed spending $50 billion on “urgent” infrastructure projects. The Commerce Department may say today retail sales rose for a third month in January, while business inventories climbed at a slower pace in December, surveys showed.

The Bank of Japan may increase the size of its asset-purchase fund, through which it buys securities such as government bonds and exchange-traded funds, by the end of this year to support growth, Meiji’s Kodama said.

The BOJ last month said it would start open-ended asset purchases only in January 2014, and the central bank’s board is forecast to keep its policy unchanged at a Feb. 13-14 gathering, according to a Bloomberg News survey of analysts.

Haruhiko Kuroda

Additional easing could be justified for 2013, Haruhiko Kuroda, the head of the Asian Development Bank and a potential contender to replace Shirakawa, said in an interview on Feb. 11. The central bank could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation, he said.

Japanese Economy Minister Akira Amari told reporters yesterday that Kuroda is among those qualified to be BOJ governor, adding that Abe has yet to decide on a nominee. Shirakawa, criticized by politicians for not doing enough to end deflation, said last week he’ll step down on Mar. 19, three weeks before his five-year term was due to end.

Abe said in Parliament yesterday that reaching the central bank’s 2 percent inflation target is possible using monetary policy. He said last week that a change in the law governing the BOJ is more likely if its policies are ineffective.

The sales tax is set to increase to 8 percent in April 2014 and 10 percent in October 2015 from the current 5 percent. While the increase may boost consumer spending toward the end of fiscal 2013, which starts in March, it may sap household demand the following year. Deutsche Bank and Itochu Corp. are among those forecasting an economic contraction in the fiscal year starting in April 2014.

“Monetary policy will probably be the only thing left to support the economy next year,” said Masaaki Kanno, chief economist at JPMorgan in Tokyo. “The moment of truth for the recovery will probably come in fiscal 2014.”

Before it's here, it's on the Bloomberg Terminal.