The grim reality of Japan’s recession were underlined yesterday when the government lowered its economic forecast for the financial year that started April, saying growth (as measures by gross domestic product) will plunge by the largest amount in post World War Two history..
As well the forecast, which was made three months earlier than normal predicted a surge in unemployment in the next year, a fall in prices and record drops for exports and capital spending: which have powered the Japanese economy for the past decade.
There was nothing optimistic at all in the forecast and it looks as though the next year will be another tough period for Australia’s biggest export market.
The Japanese Cabinet Office said in a forecast that output will fall by 3.3% in the 12 months to March 31, 2010, sharply lower than the zero growth forecast in the January forecast.
Industrial production will be down by almost 24% over the year (better than we have been seeing in the past five months) and exports will be weak.
The GDP forecast was brought forward from July after Cabinet Office economists predicted that the economy, the world’s second largest, may have contracted at an annual rate of 14% in the March quarter, which would be steeper than the 12.2% fall annual in the December quarter.
The March quarter figures are due out on May 20.
The news is a timely reminder of the depths of the country’s slump, which in some areas, such as cars, electronics and exports, remembers a depression with falls of 30% to over 50% in output in the sectors and from various sub-sectors and companies.
Later this week we will get an update on the state of the economy for the month of March and for some of 2008 financial year, which ended on march 31.
Figures to be released include retail sales, Industrial production, unemployment and prices.
As well the Bank of Japan’s monthly monetary police meeting will be held, and the central bank releases an updated outlook for the economy Thursday evening, our time. It has already downgraded its outlook at least twice so far this year.
Industrial production is forecast to rise in March and then April, according to the Trade and Industry Ministry. Exports again fell sharply, but the rate of decline eased in March.
But unemployment, retail sales and the consumer price index will all paint a better picture of the forces controlling the economy: a lack of demand, a lack of will on the part of consumers and deflationary pressures.
It’s making the job of stumbling Prime Minister Taro Aso’s much harder as he negotiates to introduce the Government’s latest 15.4 trillion yen ($US159 billion) stimulus package.
The Government says the package will cut the fall in growth by 1.9% (meaning that the drop in the current year could have been 5.2%, instead of the 3.3% estimate.
The Cabinet yesterday approved a record 13.9 trillion yen in extra funding this business year to help pay for the measures.
“This extra budget is extremely exceptional expenditure to deal with an emergency,” Finance Minister Karou Yosano flew back to Tokyo from the IMF and World Bank/G-20 meetings at the weekend for the Cabinet meeting.
He then held a press conference where he said that “Exports have declined more than expected, devastating companies. That’s the main reason for Japan’s economic downturn.”
Bloomberg reported Mr Yosano as playing down recent reports that showed the pace of the economy’s decline may be moderating. “We shouldn’t be too optimistic,” Mr Yosano said.
“We need to think about things on the assumption that economic conditions will remain very severe.”
The government said there is a risk that deflation may resurface in the current business year.
The forecast yesterday predicted consumer prices (including fuel and fresh foods) will fall 1.3% over the next 12 months to march next year. That would be the biggest drop since records began in 1971.
Exports are forecast to drop by a record 27.6% for the full 12 months; capital spending could decline a record 14.1% and the jobless rate will jump to 5.2% from 4.4% at the moment.
The International Monetary Fund last week forecast a 6.2% in output in Japan in calendar 2009, the worst among advanced economies, compared with its January projection of a 2.6% contraction.
That the Cabinet Office is almost half this fall indicates there’s a belief of a slow pick up in demand and output in the back half of the fiscal year.
The 2009 annual budget will rise to a record 102.5 trillion yen, (About $US1 trillion: a massive sum, but smaller than the US deficit which could be much bigger again).
The IMF said yesterday the new stimulus package in Japan raises the estimated share of stimulus spending from 1.4% to 2.4% of GDP in 2009, and from 0.4% to 1.8% of GDP in 2010.
"The package is tilted toward spending, particularly on public investment, support for local communities, and measures to promote lower carbon emission," The IMF said.
The Japanese Finance Ministry said the government will sell 10.8 trillion yen in new bonds to pay for most of the extra budget.
That will bring new bond sales for the fiscal year to a record 44.1 trillion yen, and total sales to 130.2 trillion yen, also the highest ever. That’s $US400 billion in new bond sales and around $US1.3 trillion in total sales.
According to the OECD, Japan’s public debt will probably spiral to 197% of gross domestic product next year. The latest stimulus package will lift that over 200% as it was published before the announced earlier this month.
Prime Minister Aso’s package includes me
