We learned yesterday just why the Japanese government is trying to get a stimulus package up for the third or fourth time, and why one its key allies is arguing to make it as big as possible.
Figures showing a sharp slowing in the reported rate of growth were released by the government and they shocked on the downside.
As a result there is a very real chance the Japanese economy could be sliding back into the red this quarter or in early 2010.
This could bad news for a host of Australian companies large and small. Japan is a major export destination, and a source of tourists, although the slump has seen numbers fall in the past two years.
Japan’s Cabinet Office said real gross domestic product grew 0.3% during the July-September quarter, less than the 1.2% reported in the preliminary reading last month.
On an annualised basis, the world’s second-largest economy grew by a revised 1.3%, down from an initial reading of 4.8%, well under the seemingly pessimistic market forecast for a 2.7% rise.
The report also revealed that the deflationary forces seen since February, are taking hold in the economy.
In nominal terms the economy shrank 0.9%, compared with the government’s initial prediction for a 0.1%.
That put nominal GDP under where it was back in 1992!
So much for economic growth in Japan.
The GDP deflator, the broadest indicator of price falls, slid 0.5% in the quarter: it has only risen twice in the past decade.
Falling business investment by the corporate sector drove the downward revision in last quarter’s growth.
Capital spending fell 2.8% in the three months through September from the previous quarter. That compares with the 1.6% increase reported last month.
That is quite a revision and a sign of the malaise that still grips the economy.
Business investment matters in Japan because it links into the export sector, which remains the only bright spot in the economy and a major driver of activity.
Consumption is not as important as in the US or Australia.
The cuts in both quarterly and annualized growth were the biggest since the survey was introduced in 2002, the government said.
The revision follows a similar cut for GDP in the fiscal year ended March, to a contraction of 3.5% from a preliminary reported fall of 3.2%.
The bad economic news has prompted plans for fresh economic stimulus, with the government on Tuesday unveiling 7.2 trillion yen ($US80.6 billion) in new spending.
That was more than double the original $US31 billion size of the package.
The IMF and other forecasters say the Japanese economy will contract by more than 5% in calendar 2009, more than the 4%-plus fall expected in the euro area and a 2.7% shrinking in the US.
Japan’s exports have led the recovery, dragging industrial production and some other parts of the economy higher.
Exports had their best performance in a year in October, thanks to the strong spending and rebound in China and the impact of car scrapping plans around the world, which has helped the country’s important car sector recover (and boosted steel output as well).
But imports remain weak, thanks to low demand and falling prices from the strong yen, and lower contract prices.
That helped the trade surplus rise 42% from a year earlier to 1.4 trillion yen or $US15 billion.
Despite the export performance, industrial production slowed to its lowest rate of growth in eight months in October (and is more than 15% down on a year ago).
Wages fell for a 17th month, consumer prices fell a near-record 2.2% (and down 1.1% on a core, non-food, non energy basis).
But unemployment fell to 5.1%, to continue the recent improvement in October.
