Japan -155 now. Japan GDP Shrinks, Recession Fears Rise -->
Monday June 11 12:44 AM ET
Japan GDP Shrinks, Recession Fears Rise
By Yonggi Kang
TOKYO (Reuters) - Japan's economy contracted in the first three
months of this year, government data showed on Monday, raising fears
that the world's second biggest economy is slipping into its fourth
recession in a decade.
Gross domestic product (GDP (news - web sites)), the broadest
measure of economic activity, dipped 0.2 percent in January to March from the last quarter, or an
annualized drop of 0.8 percent, after a revised 0.6 percent growth in the October-December period.
The data, worse than the 0.2 percent rise expected by economists, showed business investment
slipping following a cooling in exports to key markets such as the United States and Asia, while
consumer spending stalled and prices fell.
``It seems everything has weakened slightly. I'm a bit worried,'' said Finance Minister Masajuro
Shiokawa. ``But I do feel the actual economy has more strength than the figures show.''
Kazuhiko Ogata, senior economist at HSBC Securities, said he expected the economy to continue
contracting in the second, third and fourth quarters this year. ``I think the economy has started to enter
a recessionary phase,'' he said.
Some were bolder, declaring Japan already in recession -- technically defined as two straight quarters
of falls in GDP -- given mounting signs of weakness in the April to June period.
``The recession is here,'' said Merrill Lynch chief economist Jesper Koll. ``The downturn in capital
investment expenditure started a little earlier than expected...we expect that to continue throughout the
year.''
The gloomier picture threatens to trip up Prime Minister Junichiro Koizumi's reforms aimed at reining
in government debt, and could give more resonance to calls for a return to the kind of government
spending that has landed Japan with the industrialized world's worst debt burden -- the exact policy
Koizumi had hoped to stamp out when he took office six weeks ago.
Economics Minister Heizo Takenaka described the figures as a ``sad reality'' which underscored the
need for structural reforms rather than government spending. A government spokesman, Yasuo
Fukuda, added that talk of an extra budget looked premature.
Japan's economy last contracted in the July-September quarter of 2000 when GDP shrunk by 0.7
percent.
YEN WILTS AFTER 'GRIM' REPORT
The data knocked the yen down against the dollar to 121.18 from around 120.90 in New York on
Friday, while in Tokyo's gloomy stock market, which has grown accustomed to disappointing news
about the economy, the figures were taken in stride.
The benchmark Nikkei average (^N225 - news) finished the morning session off a mere 0.21 percent
at 13,402, hurt by falls in high-technology stocks following a revenue warning from U.S.-based
Juniper Networks Inc.
``The data was not a surprise,'' said Takashi Miyazaki, senior strategist at UFJ Partners Asset
Management, which oversees 3.11 trillion yen ($25.73 billion) in investments. ''The market has
already been ready for severe economic conditions.''
For fiscal 2000/01 that ended in March, the economy grew 0.9 percent, below the government's
forecast of 1.2 percent growth, the Cabinet Office said.
FLAT CONSUMER SPENDING
Private consumption, which takes up about 60 percent of the economy, was unchanged. Economists
had expected a stronger figure due to a technical factor as shoppers rushed to replace big ticket items
before April when a new recycling law came into effect and raised the cost of throwing out old
appliances.
``The figures, particularly consumption, were weaker than expected. That could be because of a
sharp fall in single-household spending,'' said Daiwa Institute of Research senior economist Hitoshi
Suzuki.
The economy was also dragged down by flagging exports, which fell by 3.6 percent -- the first drop
since January-March 1999.
A 1.0 percent decline in corporate capital spending, the second largest component of the economy
and a key driving force of growth in recent years, also cut into the quarter and is considered one of
the biggest risks going forward.
``There is a debate in Japan whether we're going to be experiencing a hard or soft landing. This report
suggests, if anything, that we might be hitting the runway with no landing gear,'' said WestLB Panmure
economist Andrew Shipley.
``The report makes grim reading,'' he said.
The prospect of Japan on the brink of another recession little more than a year after its last one drove
up long-term interest rates on speculation that the Bank of Japan will keep its ultra-easy zero interest
rate policy in place for some time.
RECESSION WORRIES
If April to June GDP contracts, Japan would enter its fourth recession since 1990. In 1992, GDP fell
for two straight quarters, in 1993 it contracted for three straight quarters and in 1999 it fell for another
two straight quarters.
``All the components of demand are starting to fall and the government is not willing to come up with
public spending measures to support the economy,'' said Ogata at HSBC.
``Thus, the economy will likely recede soon and there is danger of it falling into a deflationary spiral.''
(With additional reporting Yoko Nishikawa, Ritsuko Ando, Shinichi Kishima and Tamawa Kadoya)
Monday June 11, 1:23 am Eastern Time
Tokyo stocks droop, high-techs extend slide
(UPDATE: Updates to midafternoon)
TOKYO, June 11 (Reuters) - Tokyo stocks were lower in midafternoon on Monday due to weak gross domestic product (GDP) data and a bearish outlook from
a U.S. network equipment maker which battered high-tech shares such as Advantest Corp .
``This GDP data is slowly delivering a body blow to the market,'' said Hiroshi Sato, equities general manager
at Cosmo Securities.
``With GDP numbers for April-June unlikely to be much better than January-March, some people must be
thinking it would be better to stay away from techs for a while.''
Japan's GDP dipped 0.2 percent in January-March from the previous quarter, worse than a 0.2 percent rise
expected by economists, raising fears the world's second-largest economy is slipping into its fourth recession in
a decade.
GDP rose 0.6 percent in the October-December quarter.
The benchmark Nikkei average was down 191.26 points or 1.42 percent at 13,238.96 at 0459 GMT, while
the capital-weighted TOPIX index (^TOPX - news) fell 9.56 points or 0.73 percent to 1,308.53.
Advantest, Japan's number one maker of semiconductor testing devices, fell 7.20 percent to 11,990 yen and Tokyo Electron Ltd , a top maker of
semiconductor-manufacturing equipment, lost 6.21 percent to 7,860.
High-tech issues came under pressure because investor sentiment was rattled by a weaker revenue forecast from U.S. network equipment maker Juniper Networks
(NasdaqNM:JNPR - news), which fanned concerns over earnings prospects in the technology sector.
In contrast to techs, auto shares benefited indirectly from the GDP data, since the softer-than-anticipated numbers pushed down the yen.
Honda Motor Co Ltd gained 1.74 percent to 5,250 yen and Mazda Motor Corp put on 3.81 percent to 300 yen.
A weak yen boosts exporters' overseas revenues when converted into the Japanese currency.
The dollar was quoted at 121.25/31 yen in afternoon trade, compared to 120.44/47 in late Tokyo on Friday. |
