Japan Quake Takes Bigger-Than-Estimated Economic Toll as BOJ Cuts Forecast
Japan’s economy had a greater hit from last month’s disaster than anticipated, with factory output declining the most since at least the end of the U.S. occupation and the central bank slashing its growth forecast.
Factory output fell 15.3 percent from February, the biggest drop since data began in 1953, and household spending slid 8.5 percent from a year earlier, the government said today. The Bank of Japan cut its growth estimate for the year ending March 2012 to 0.6 percent from a January prediction of 1.6 percent.
The deterioration makes harder Prime Minister Naoto Kan’s task of sustaining confidence in Japan’s government debt after Standard & Poor’s yesterday downgraded its outlook for the nation’s rating. Deputy Governor Kiyohiko Nishimura’s proposal to expand the BOJ’s asset-purchase fund was rejected by the policy board, who voted to keep policy unchanged.
“Plunges in output and exports will weaken consumer spending and that may prompt discussions for more stimulus,” said Masayuki Kichikawa, chief economist at Bank of America- Merrill Lynch in Tokyo. “The Bank of Japan will be compelled to consider adding more stimulus around the middle of the year as we get a clearer picture of how weak demand is.”
The Nikkei 225 Stock Average rose 1.6 percent to 9,811.66 at 1:02 p.m. in Tokyo after the U.S. Federal Reserve renewed its pledge to stimulate growth. The yen traded at 81.82 per dollar.
All Nippon Airways Co., Panasonic Corp. and Mazda Motor Corp. today announced plans to postpone releasing profit forecasts to give them more time to assess damage from the earthquake.
The central bank raised its inflation forecast for fiscal 2011 to 0.7 percent from an earlier estimate of 0.3 percent, a report released after the policy decision showed. Growth will accelerate to 2.9 percent next year, while consumer prices will expand by the same amount projected for this year, the bank said.
“I’m confident supply chains will recover earlier than we all expected” even though today’s output number was “devastating,” Economic and Fiscal Policy Minister Kaoru Yosano told reporters in Tokyo today. He said it was too early to consider economic stimulus measures and that the state of the economy needs to be observed for now.
The Bank of Japan today kept its asset-purchase program at 10 trillion yen ($122 billion), the benchmark interest rate at a range of zero to 0.1 percent and a bank-credit facility at 30 trillion yen. Deputy Governor Kiyohiko Nishimura voted to boost the asset fund by 5 trillion yen, matching the expansion that the central bank implemented after the March 11 earthquake.
Policy makers also detailed an emergency-lending program for banks in devastated northeastern areas, saying they will accept BBB rated securities as collateral.
BOJ Governor Masaaki Shirakawa has repeatedly signaled opposition to more-aggressive stimulus, such as direct financing of government debt, citing the risk of stoking inflation. A group of lawmakers and former Cabinet ministers yesterday pressed for more purchases of government bonds.
Household spending, output and retail sales all slid by more than the median estimates in Bloomberg News surveys of economists.
Core consumer prices, which exclude fresh food and are the central bank’s preferred measure, fell 0.1 percent in March from a year earlier, the statistics bureau said today, the smallest drop in two years.
The nation’s unemployment rate was unchanged at 4.6 percent, beating economists’ forecasts for a 4.8 percent reading. Payroll data may have been skewed by the fact that the government couldn’t collect responses from Miyagi, Fukushima and Iwate prefectures, areas in northern Japan most devastated by last month’s temblor.
Kan last week proposed a 4-trillion yen extra budget likely to be the first of several packages to rebuild. Since the disaster, the central bank has doubled the size of its asset- purchase fund, injected record amounts of cash into money markets and unveiled the one-year lending program.
A cross-party group of senior Japanese lawmakers said the government shouldn’t raise taxes to pay for rebuilding and called on the central bank to buy more government debt instead. The central bank currently purchases 1.8 trillion yen in bonds every month and has rejected the idea of underwriting debt because the move could spur inflation.
Toyota Motor Corp., Honda Motor Co. and Nissan Motor Co., Japan’s three biggest carmakers, say domestic output plunged in March. Japan’s exports dropped in March for the first time since November 2009 and consumer confidence fell the most on record, reports showed last week. Toyota said April 22 it would be able to “normalize” its production in Japan from July.
Japan’s domestic vehicle production fell 57.3 percent to 404,039 units in March, the Japan Automobile Manufacturers Association said in a statement today. Exports dropped 26 percent to 312,478 units.
“There’s high chance that the BOJ will lean toward to an additional easing” this quarter, said Yuichi Kodama, an economist at Meiji Yasuda Life Insurance Co.
Radiation readings at the Fukushima Dai-Ichi nuclear power plant rose this week to the highest since the earthquake and tsunami knocked out cooling systems and triggered the worst nuclear crisis since Chernobyl.
“Instability in the power supply has a direct impact on corporate production plans, potentially shrinking production by more than might be expected merely as a result of a series of power cuts,” said Takehiro Sato, chief Japan economist at Morgan Stanley MUFG Securities Co. in Tokyo.
Toyota Motor’s output in Japan plunged 63 percent to 129,491 vehicles in March from a year earlier and the company has estimated it may lose production of 300,000 autos in Japan and 100,000 abroad through the end of April because of quake- related shutdowns.
Companies said they plan to increase output 3.9 percent this month and 2.7 percent in May, according to today’s report, an indication that factory production will resume as supply constraints ease.
S&P cutting the outlook on Japan’s AA- local-currency credit rating to “negative” from “stable” highlights the challenge for the government of financing rebuilding and supporting a recovery without adding to the world’s biggest public debt burden.
Rating companies are concerned that politicians may fail to forge a consensus for tackling a debt equivalent to about 200 percent of gross domestic product. The Finance Ministry projects a 997.7 trillion yen total for the year started April 1.
Increasing taxes, as advocated by the Organization for Economic Cooperation and Development, may damp demand just when the economy is at its weakest. The OECD says a sales tax should be at least doubled to 10 percent.
The government last month estimated that damage from the disaster, which left some 26,000 people dead or missing, at as high as 25 trillion yen ($306 billion). The economy may contract 3 percent in April-to-June, according to the median of 18 estimates in a Bloomberg News survey this month.
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