What does this mean for Hong Kong Market? Japan slips back into a recession
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Japan slips back into a recession
GDP shrinks 1.4%, marked by weak consumer spending
By Bill Clifford & Mariko Ando,
CBS MarketWatch
Last Update: 10:51 PM ET Mar 12, 2000 NewsWatch
World indexes
TOKYO (CBS.MW) -- Japan said Monday its economy shrank for the second quarter in a row, with output decreasing 1.4 percent during the last three months of 1999 in a contraction that marks what economists generally define as a recession.
Most government and private economists had expected the fourth-quarter gross domestic product to fall only 1.0 percent. That would have matched the nation's negative third-quarter performance to the tee.
Despite the worse-than-expected headline number, several analysts and government officials said they believe the world's No. 2 economy has turned the corner toward recovery. Blue-chip stocks in Tokyo initially rose after the report but later retreated. See full story.
'Recession is over'
"Japan's recession is over," said Tomoko Fujii, economist at Nikko Salomon Smith Barney.
That was certainly the conclusion in the bond market, too, where believers in a prolonged recession scenario would have pushed prices up. But the opposite happened: Japan's 10-year benchmark, No. 219B government bond, fell 0.127, or 63.5 yen per 50,000-yen bond, to 99.746. Its yield rose 1.5 basis points to 1.830 percent after touching 1.835 percent -- the highest level since Feb. 29. The 10-year futures contract for June delivery fell 0.21 to 130.79.
In currency trading, the dollar firmed slightly at first to 106.50 yen. As traders focused on Japan's economic future rather than the past, they bought yen and the dollar dipped below 106 to 105.97.
Economists generally consider a nation to be in recession if it posts at least two quarters of back-to-back, shrinking GDP. Japan's growth of 1.9 percent in the first quarter of 1999 ended five straight quarters of contraction, and that was followed by growth of 0.2 percent in the second quarter.
"Even though the fourth-quarter GDP figure was at the bottom of the consensus range, Japanese capital spending (was) so much stronger than anyone expected -- it nudged the Nikkei Stock Average up in the morning," Fujii said..
In its GDP report, Japan's official Economic Planning Agency said spending by companies on factories and equipment rose 4.6 percent from the previous quarter.
Shortly after Japan issued its GDP report, the Nikkei added about 10 points to 19,760. By the midday break, however, the Nikkei was down 298.91, or 1.5 percent, to 19,451.49. Traders said the reversal had little to do with Japan's economic picture, and was triggered instead by momentum declines in share of Sony and Internet heavyweights Hikari Tsushin and Softbank.
The culprit behind the economy's October-December contraction, as before, was weak private demand. Consumer spending fell 1.6 percent from the July-September period, and housing investment dropped 5.8 percent.
Growth still expected
The Economic Planning Agency said that for the 1999 calendar year, the world's No. 2 economy grew 0.3 percent by comparison to 1998.
Its forecast of 0.6 percent GDP growth for fiscal year 1999, which ended March 3, is attainable if the economy grows 2.0 percent in the January-March quarter, the agency said. Nikko Salomon's Fujii expects growth in the current quarter to exceed 1.0 percent.
The EPA is so confident that Japan isn't in a real recession that it has decided to state in its March report, due out Friday, that the economy is showing "signs of staging a self-sustained recovery," the Nihon Keizai business daily reported over the weekend.
It will be the first use of the word "recovery" in the monthly report since the current slump began in April 1997, when Japan hiked its national sales tax.
Recovery in spending
The report will say that "corporate capital investment is recovering across a wide range of industries and its decline is, on the whole, coming to an end," according to Nikkei. It will also point out an end to inventory reduction and an improvement in corporate earnings, the paper said, citing unnamed agency sources.
Support for that upbeat view came with agency data last week, highlighting an increase in Japanese core machinery orders, up 0.8 percent
in January from December against expectations of minus 8.3 percent. Machinery orders are seen as a reliable gauge of spending on plant and capital as much as six months ahead, and the data exceeded private economists expectations.
The shift to private-led growth from an economy that has been pumped up by hundreds of trillions of yen in emergency government spending is what virtually everybody inside and outside Japan has been waiting for.
The question is whether Japan's consumers, whose spending makes up about 60 percent of the country's economic activity, will also start opening their wallets again.
A survey conducted earlier this month by the Kyodo News Agency found 35 percent of respondents feel the economy is on a recovery path, compared to 20 percent last March. Still, 61 percent of Japanese think the economy is getting worse. That's not as pessimistic as last year's Kyodo survey, when 76 percent of respondents fretted about economic deterioration, but it reflects on-going worries about job security.
Bill Clifford is Tokyo bureau chief for CBS MarketWatch. Staff reporter Mariko Ando contributed.
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