The Fukushima nuclear crisis is helping drain the strength from the Japanese economy.
We will see that damage confirmed later today when the Japanese Government downgrades its outlook for the economy, after maintaining an upbeat outlook only last month.
Not only is the initial reaction proving to be more than many have expected, with more and more companies reporting big hits to sales, profits and confidence.
But the economy is loosing momentum by the day as Japanese consumers shutdown and stop spending and the corporate sector pulls back on expansion and investment plans.
Three big aftershocks, one late on Monday and two yesterday, also underlined the continuing battering the economy, consumers and business are taking.
Over 400 aftershocks have hit Japan since the massive March 11 quake and tsunami.
While the International Monetary Fund cut Japan’s economic growth 1.4% this year, compared to a previous forecast of 1.6%, it raised the 2013 forecast to 2.1% because it sees a big bounce back from the rebuild.
The Fund estimates damage to housing and infrastructure from the disaster at 3% to 5% of GDP, roughly twice the level of the 1995 Kobe quake.
Importantly, the estimate excludes the effects of the ongoing nuclear crisis and possible power shortages.
That’s omission is important (its also omitted from other estimates) because the continuing damage being done to the economy and national confidence by the Fukushima crisis is hard to estimate.
A senior economist at JPMorgan warned yesterday that the Japanese economy will likely slip back into recession during the first half (ended September 30) as a result of the earthquake and nuclear power plant disaster.
"Technical recession is probably quite likely," said Masamichi Adachi, executive director and senior economist, at JPMorgan Japan told Dow Jones Newswires in an interview in Sydney.
That was a view expressed by the bank’s Tokyo economists yesterday as well.
The bank now expects the economy likely contracted by around 1.0% or 2.0% in the first quarter and could shrink by as much as 3.5% to 5.0% in the second quarter. JPMorgan’s current forecast is for first quarter growth of 0.5%.
Mr Adachi told Dow Jones that the economy would enjoy a strong rebound in activity should drag the economy into positive territory from the third quarter onwards, with around 5.0% and 6.0% in the final quarter (ended March 31, 2012).
But he warned that there a series of obstacles to this outlook, such as supply chain disruption, power shortages and the ongoing nuclear crisis.
The Bank of Japan updated its outlook for the economy and said on Monday that most regions across the country had downgraded their assessment of local economic conditions because of the damage caused by the March 11 quake and tsunami.
According to the Bank of Japan, the country’s economy has stalled in seven out of nine regions.
Masaaki Shirakawa, the central bank’s governor, said that while the earthquake would not bring down the country’s already debt-ridden financial system, there was "strong downward pressure" on the economy, repeating comments the bank used in the statement issued after last week’s monthly meeting.
Mr Shirakawa said the economy faces downward pressure on the production side due to damaged facilities, disrupted supply chains and power cuts.
He also noted that some mainly mid- to small-sized companies are facing difficulty in raising funds despite emergency measures taken by the central bank.
Figures out yesterday provide another snapshot of the damage done, this time to the beer industry.
March beer shipments for Japan’s five top brewers fell 10.9% from a year earlier, the first double-digit decline in 14 months, due to lost output at quake-damaged breweries.
The loss of output is expected to continue for several more months while breweries are brought back into production after being repaired and consumers regain confidence to resume drinking.
But beer and alcohol, along with eating out are likely candidates to suffer as Japanese consumers cut back their spending (as they do in national crises).
(it could be bad news for Australian barley and hops exports to Japan if the slump in beer and other alcohol sales continues)
The continuing large aftershocks and the nuclear crisis are adding to the downward pressure on confidence as well.
Meanwhile Tokyo Electric Power Company, which still hasn’t regained control of the Fukushima complex has received a combined 2 trillion yen, or nearly $US24 billion, in emergency loans from major banks.
The Development Bank of Japan on Monday offered the power company about 1.2 billion dollars in loans. The bank says it will consider further loans if the power company needs them.
At the end of last month, Sumitomo Mitsui Banking Corporation, Mizuho Corporate, Tokyo-Mitsubishi UFJ, Mitsubishi UFJ Trust and Banking and other trust banks lent the utility firm a total of about 22.5 billion dollars.
Tokyo Electric sought the funds to cope with the crisis at the quake-stricken Fukushima Daiichi nuclear power plant. The money will also be used to repair and boost the company’s thermal power generation facilities to make up for power shortages from the damaged reactors at Fukushima and elsewhere.
Citigroup downgraded Japan’s auto sector from "buy" to "sell". Toyota, Honda and Nissan all saw their shares fall more than 2% in value.
In its latest assessment of the economy, The Bank of Japan marked out the car sector as an are
