Published February 17, 2009

Japan in stimulus limbo as Q4 GDP dives 3.3%

Minister rules out immediate new measures to stem dramatic deterioration in economy

By ANTHONY ROWLEY
IN TOKYO

	Email this article
	Print article
	Feedback

JAPAN'S economy shrank by a worse-than-expected 3.3 per cent in the fourth quarter of last year, or 12.7 per cent at an annual rate, marking the most savage contraction in 35 years, the government said yesterday. And the economy is set to shrink again in the current first quarter, marking a full year's contraction unprecedented in Japan's post-war history.

The country is in the midst of its worst slump since World War II, Economics Minister Kaoru Yosano said yesterday, although he ruled out any immediate new moves to stem the collapse.

With only government spending and housing making any positive contribution to GDP - exports, private investment and personal consumption are all heavily in negative territory - markets are hoping for a declaration of further government aid in response to the latest dismal figures.

But Mr Yosano made it clear that no special steps for the economy will be taken until the regular Budget for the new fiscal year beginning April 1 has passed through Parliament. He said, however, that the government has a 'duty' to consider new measures at some point.

Prime Minister Taro Aso, whose Liberal Democratic Party (LDP) controls the Lower House of Parliament, hopes to pass the Budget with the aid of coalition forces, in defiance of attempts by the opposition- controlled Upper House to block it. But Mr Aso could face a revolt within the LDP against controversial cash handouts, forcing an early general election.

The dramatic deterioration in the economy has been brought on by a collapse in exports and industrial output, leading to sharp falls in private investment and consumer spending. Net exports made a negative contribution of 3 per cent to GDP in Q4 last year - the worst performance ever.

Any hope that Japan might get help from its Group of Seven (G-7) partners through concerted official intervention to weaken the yen from its current 13-year high were dispelled when G-7 finance ministers meeting in Rome over the weekend ruled out any such move.

All other leading economies are too busy grappling with their own recessions to be able to offer Japan any lifeline, even though the Japanese economy is contracting at a much deeper and more rapid rate than those elsewhere.

The yen edged up yesterday in response. The stock market, already expecting the worst, marked time, with the benchmark Nikkei 225 slipping 0.4 per cent to 7,750.17 points.

Markets are now looking to the Bank of Japan (BOJ) to announce new monetary measures when its policy board meets next week. But there appear to be few moves left to make, analysts say.

Economists generally expected Q4 2008 GDP to shrink 3.1 per cent compared with the preceding three months.

But a steep drop in Q4 industrial production - revised upwards yesterday to 9.8 per cent - hit the economy hard. It contracted for a third straight quarter month-on-month, for the first time in seven years.

The economy is widely predicted to contract again at a double-digit rate in Q1 this year, which means it will have shrunk for a whole year - some economists say by as much as 5-6 per cent overall in real terms.

In nominal terms, October-December GDP shrank 1.7 per cent, or about half the rate in real terms. This was due to a rise in the GDP deflator for the first time in 10 years, which appeared to signal the return of inflation. But analysts put the rise down to technical factors and suggested the economy, in fact, faces renewed deflation.

Among the main components of GDP, exports crashed 13.9 per cent in the final three months of last year, while corporate capital investment fell 5.3 per cent and personal consumption 0.4 per cent. Housing investment made a 5.7 per cent positive contribution, but mainly because rises in past housing starts were built into the Q4 figure. Government outlays rose 1.2 per cent.

Japanese media speculated yesterday that the government could be considering additional stimulus measures worth up to 30 trillion yen (S$494 billion). But Mr Yosano said it is difficult to see how such a sum could be spent effectively in current conditions.