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Japan GDP Decline Strengthens Abe’s Case for Stimulus: Economy

By Keiko Ujikane
February 14, 2013 2:49 AM EST 7 Comments
Jackets are displayed on mannequins at Fast Retailing Co.'s Uniqlo Marche Printemps Ginza store in Tokyo. Domestic same-store sales at Uniqlo rose 13.7 percent in November and 4.5 percent in December.
Photographer: Haruyoshi Yamaguchi/Bloomberg
Jackets are displayed on mannequins at Fast Retailing Co.'s Uniqlo Marche Printemps Ginza store in Tokyo. Domestic same-store sales at Uniqlo rose 13.7 percent in November and 4.5 percent in December.

Japan’s economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption, bolstering Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation.

Gross domestic product contracted an annualized 0.4 percent, following a revised 3.8 percent fall in the previous quarter, the Cabinet Office said in Tokyo today. The median forecast of 32 economists surveyed by Bloomberg News was for 0.4 percent growth. Nominal GDP shrank 0.4 percent on quarter.

The prolonging of Japan’s recession into a third quarter shows that benefits from a weaker yen and rising stocks have yet to be felt. The lower house of parliament passed Abe’s fiscal stimulus package today, while Bank of Japan Governor Masaaki Shirakawa and his colleagues raised their assessment for the economy and left monetary policy unchanged.

“These are pre-Abe numbers,” said Takuji Okubo, chief economist at Japan Macro Advisors who formerly worked at Goldman Sachs Group Inc. “He was only prime minister for about the last week of the quarter. We will see a fairly big pick up this year, led by exports recovering on the weaker yen.”

The yen snapped a two-day advance today after Kazumasa Iwata, a former BOJ deputy governor who is a possible candidate to replace Shirakawa, said in a statement ahead of a meeting with ruling party lawmakers that a level around 90-100 per dollar would be a return to equilibrium. The currency was 0.1 percent weaker at 93.52 as of 4:34 p.m. in Tokyo, while the Nikkei 225 Stock Average closed up 0.5 percent.

Korean Concern

South Korea’s finance minister said last month that his nation’s exporters may be “at risk” from Japanese policies as Abe prepares to nominate a new leadership team at the BOJ that’s forecast to deploy greater stimulus. In the latest expression of concern, the Bank of Korea said today that the “expansionary” stance of the new Japanese government is among risks for South Korea’s economy. The BOK kept interest rates on hold today.

Shirakawa told reporters today that, while monetary policy has a “certain effect” on currencies, it is aimed at domestic economic stability rather than foreign exchange rates.

Japanese exports fell for seven months through December as Europe’s crisis dragged on shipments and a dispute with China over islands claimed by both nations hurts demand for products such as Toyota Motor Corp.’s cars. Net exports contributed 0.2 percentage point to the contraction, today’s report showed.

A 0.4 percent on-quarter rise in private consumption, which accounts for more than half of GDP, was not enough to avert a contraction even as colder-than-usual weather spurred sales of winter clothing and other items.

Domestic same-store sales at Uniqlo, Japan’s largest clothing retailer, rose 13.7 percent in November and 4.5 percent in December.

Investment Falls

Business investment fell 2.6 percent from the previous quarter, the fourth consecutive drop in capital spending, even as some companies said their earnings outlook is improving due to the weaker yen.

Panasonic Corp., Japan’s second-biggest television maker, reported an unexpected profit for the quarter. Fuji Heavy Industries Ltd., the maker of Subaru cars, last week raised its profit forecast for the fiscal year that ends in March by 13 percent, while Nintendo Co. on Jan. 30 doubled its annual net income forecast for the same period.

Investors’ expectations for more monetary stimulus have pushed the Nikkei up by about 30 percent in the past three months, while the yen has fallen almost 15 percent against the dollar in the same period.

Goldman last month raised its GDP forecast for the fiscal year starting in April to 2 percent from 1.2 percent, citing the weaker yen, fiscal stimulus and anticipated monetary easing. The median average of economists surveyed by Bloomberg News is for 1.6 annualized growth this quarter.

Inflation Target

The BOJ last month set a 2 percent inflation target with no deadline and said it would start open-ended asset purchases in 2014. The central bank’s board today kept its asset-purchase program at 76 trillion yen ($813 billion). Shirakawa and his two deputies step down on March 19.

“There’s a high chance the BOJ will apply more monetary easing,” in coming months, said Kyohei Morita, chief economist at Barclays Plc in Tokyo. He sees the central bank taking action in April or May after the selection of a new governor.

Additional easing could be justified for 2013, Haruhiko Kuroda, the head of the Asian Development Bank and another potential contender to replace Shirakawa, said in an interview on Feb. 11. The central bank could usher in a growth spurt unseen in a generation by stepping up stimulus and ending deflation, he said.

Asia’s Economy

Elsewhere in Asia, New Zealand’s manufacturing industry expanded at the fastest pace since May in January while consumer confidence in February surged to the highest in more than two and a half years.

Indian inflation slowed to a more than three-year low in January, a deceleration that if sustained may boost room for another interest-rate cut as growth falters.

In Europe, Germany’s economy shrank more than economists forecast in the fourth quarter as exports declined, while the French economy also contracted. GDP figures for the euro region are due later in the day.

In the U.S., initial jobless claims probably declined in the week ended Feb. 9, a survey showed before a report due today.

Japanese Economy Minister Akira Amari said last month that the effects of the government’s 10.3 trillion yen stimulus package announced on Jan. 11 would begin to appear in April.

The economy “remains weak,” Amari said in a statement released with today’s GDP figures. “The economy will return to a gradual recovery through the BOJ’s monetary easing, fiscal stimulus and an expected improvement in the global economy.”

Japan’s annualized GDP fell a revised 1 percent in the second quarter of last year, from an previous estimate of a 0.1 percent contraction, today’s data showed, confirming that the economy shrank for three straight quarters.

To contact the reporter on this story: Keiko Ujikane in Tokyo at kujikane@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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