Japan's economy shrinks record 15.2 percent
Japan's economy shrank by a record last quarter as exports collapsed
and consumers and businesses slashed spending, a decline that probably
marked the low point in the country's worst recession since World War
Gross domestic product fell an annualized 15.2 percent in the three
months ended March 31, following a revised fourth quarter drop of 14.4
percent, the Cabinet Office said in Tokyo. The economy contracted 3.5
percent in the year ended March 31, the most since records began in
Exports plunged an unprecedented 26 percent last quarter, forcing
companies from Toyota Motor Corp. to Hitachi Ltd. to cut production,
workers and wages. Stocks have gained 32 percent since reaching 26-year
low in March on speculation worldwide interest-rate reductions and
spending by Governments will halt the slide in the world's
"There was a collapse across the board," said a senior economist at
Dai-Ichi Life Research Institute in Tokyo Yoshiki Shinke. Still, he
added, there's "light at the end of the tunnel" and the economy will
resume growing this quarter as companies replenish inventories and
stimulus plans at home and abroad take effect.
The yen traded at 95.59 per dollar at 12:56 p.m. in Tokyo from 96.16
before the report was published. The Nikkei 225 Stock Average rose 0.3
percent. Economists surveyed predicted the economy would shrink 16.1
GDP fell 4 percent on a non-annualized basis, more than double the
US's 1.6 percent slide. It's also worse than Europe's record 2.5 percent
contraction. Without adjusting for price changes, Japan shrank 2.9
percent last quarter.
Weaker domestic demand was the biggest contributor to the decline,
shaving 2.6 percentage points off GDP, the most since 1974. Net exports
- the difference between exports and imports - was responsible for 1.4
percentage points of the drop.
Consumer spending slid 1.1 percent and business investment plunged a
record 10.4 percent. Economists say companies will keep cutting spending
because the decline in demand has left factories and workers underused.
"There is a huge problem of over-capacity," said chief economist at
Credit Suisse Group AG in Tokyo Hiromichi Shirakawa.
"That means capital spending is not likely to pick up."
Hitachi, a maker of nuclear reactors, home appliances and hard-disk
drives, will trim costs by 500 billion yen ($5.2 billion) this fiscal
year to minimize losses after a record 787.3 billion yen deficit last
year. The Tokyo-based company said in January it plans to cut 7,000
Still, reports in the past month suggest the world's second-largest
economy may grow for the first time in a year this quarter, albeit from
a low point, as exports stabilize and Prime Minister Taro Aso's 15.4
trillion yen stimulus plan, announced in April, takes effect.
Consumer confidence climbed to a 10-month high in April. Exports
increased in March from a month earlier, and factory output rose for the
first time since September.
"Japan, first of all, will get a big boost from fiscal stimulus,"
Thomas Byrne, senior vice president of Moody's Investors Service, said
in an interview in Tokyo. "Second, if the global economy picks up a
little bit, that will help tremendously in Japan because of its
dependence on exports."
Byrne said Moody's is unlikely to cut Japan's debt rating over the
next year because investors are willing to buy bonds that will fund the
stimulus plans. Moody's unified Japan's ratings at Aa2 this week,
raising the local-currency assessment from Aa3 and lowering the
foreign-currency view from Aaa.
"While the economy will continue to be in a severe state, I expect
less pressure from inventory adjustments and the stimulus package to
provide support," Economy and Fiscal Policy Minister Kaoru Yosano said
after the report.
Falling inventories accounted for 0.3 percentage point, or about a
tenth, of last quarter's contraction. Bloomberg