While Japan returned to a trade surplus and the outlook for consumers firmed in February, economists continue to warn of the growing downside risks to the export sector and the economy generally due to the March 11 earthquake and tsunami, which has paralysed production facilities, power supplies and distribution networks in north-eastern Japan and around Tokyo.
But Japanese shares again fell as the government and Tokyo Electric Power Co struggled to prevent the Fukushima nuclear crisis from worsening.
But the market recovered in afternoon trading.
Potentially fatal levels of radiation were detected outside the containment buildings for the first time and Prime Minister Naoto Kan was reported by newsagencies as saying the situation was "unpredictable".
Goldman Sachs forecast that the economy will shrink in the June quarter and cut its 2011-2012 growth forecast to 0.7% from 1.3%.
The Japanese government though yesterday denied a media report that it was considering nationalising Tokyo Electric Power Co, the operator of the stricken nuclear plant.
Chief Cabinet Secretary Yukio Edano said in Tokyo the report in The Yomiuri newspaper, citing unidentified government sources, was wrong.
The paper had said that the government would temporarily nationalise TEPCO, taking a majority stake, and would help manage it and help it pay compensation for damage caused by its Fukushima nuclear power plant after it was knocked out by a massive earthquake and tsunami on March 11.
Tepco shares are down 85% after a big fall on Monday and yesterday on news of more problems at Fukushima and troubles measuring radiation outside the plants. The company has lost about $US30 billion in market value since the March 11 disaster.
The company supplies one third of Japan’s consumers with power, while its share of business power is higher because it dominates the Kanto region around Tokyo which accounts for 45% of the Japanese economy.
Workers at Fukushima have discovered new pools of radioactive water leaking from Japan’s crippled nuclear plant that officials believe are behind soaring levels of radiation spreading to soil and seawater.
Crews also detected plutonium in the soil outside the complex, although officials insist the finding posed no threat to public health.
Three of the complex’s six reactors are believed to have partially melted down, and emergency crews have struggled with everything from malfunctioning pumps to dangerous increases in radiation that have forced temporary evacuations.
Confusion at the plant has intensified fears that the nuclear crisis will continue for months or even years amid alarms over radiation making its way into produce, raw milk and even tap water as far away as Tokyo.
Meanwhile Bloomberg and other media reported that the Japanese government is considering abandoning a proposed corporate tax cut and boosting levies on individuals to help meet the $US300 billion-plus bill (more than 25 trillion yen) for earthquake reconstruction and cut future government bond issues.
Vice Finance Minister Fumihiko Igarashi said yesterday the government may scrap the planned 5 percentage-point reduction in company tax rates, a step that Bloomberg said had been supported by the head of the nation’s largest business lobby.
The deputy chairman of the Democratic Party of Japan’s tax committee Ikkou Nakatsuka said separately in an interview, “We can’t avoid raising taxes as the great earthquake may worsen an already dangerous fiscal situation”.
Increasing taxes would risk deepening the hit to economic growth in the aftermath of the nation’s record earthquake and ensuing tsunami on March 11.
Some politicians have instead advocated that the Bank of Japan buy debt directly from the government to pay for the reconstruction.
Bloomberg said that according to a poll released this week by Kyodo News Service, 67.5% of the public support higher levies to fund reconstruction.
Increasing taxes, though they might hit consumption, will also help lessen fears of a fiscal crunch from a sharper than expected rise in bond sales and therefore government debt which is already running at 210% of GDP.
Boosting the GST, currently 5%, to 7% would raise an extra $US60 billion (although that could fall short if consumption falls, as it did after the last increase in 1997).
More than 28,000 people have died or are missing following the earthquake and tsunami that devastated Japan’s northeast coast on March 11th.
Japan’s National Police Agency says 11,004 people had been confirmed dead and 17,339 listed as missing. Police have identified 8,030 of the bodies.
