Japan's GDP fall boosts Abe's case for stimulus

Benefits of weaker yen and rising stocks still to be felt in the country's recession-hit economy

PUBLISHED : Thursday, 14 February, 2013, 9:08am
UPDATED : Friday, 15 February, 2013, 6:06am


More on this story

Japan's economy unexpectedly shrank in the past 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 annualised 0.4 per cent, following a revised 3.8 per cent fall in the previous quarter, the Cabinet Office said yesterday. The median forecast of economists was for 0.4 per cent growth.

Nominal GDP shrank 0.4 per cent quarter on quarter.

An economy still mired in recession suggests a lag before Japan benefits from a weaker yen and rising stocks.

Banks from Goldman Sachs to Nomura have raised their growth forecasts for this year on Abe's plan to revive the economy through fiscal and monetary stimulus as central bank governor Masaaki Shirakawa prepares to exit next month.

"These are pre-Abe numbers," said Takuji Okubo, the chief economist at Japan Macro Advisers.

"He was only prime minister for about the last week of the quarter. We will see a fairly big pickup this year, led by exports recovering on the weaker yen."

The yen snapped a two-day advance after Kazumasa Iwata, a former deputy governor of the Bank of Japan who is a possible candidate to replace Shirakawa, said in a statement before a meeting with ruling-party lawmakers that a level for the yen at 90 to 100 per US dollar would be a return to equilibrium.

South Korea's finance minister said last month that his country's exporters might be "at risk" from Japanese policies.

In the latest expression of concern, the country's central bank, which kept interest rates on hold yesterday as officials monitor the won's gains against the yen, said the "expansionary" policies of the new Japanese government were among risks for Korea's economy.

Japanese exports fell for seven months to December as Europe's economic crisis dragged on shipments and a dispute with China over islands claimed by both countries hurt demand for products such as Toyota Motor's cars. Net exports contributed 0.2 percentage point to the contraction, yesterday's report showed.

A 0.4 per cent quarter-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 per cent in November and 4.5 per cent in December.

Business investment declined 2.6 per cent from the previous quarter, the fourth consecutive drop in capital spending, even as some companies said their earnings outlook was improving because of the weaker yen.