Japan growth estimate slashed

December 9, 2009 (source: Sidney Morning Herald)

Japan's economy expanded less than initially estimated in the third quarter as companiescut spending in the wake of the country's deepest postwar recession.

Gross domestic product rose at an annual 1.3 per cent pace, slower than the 4.8 per centreported in preliminary figures last month, the Cabinet Office said today in Tokyo. Themedian estimate of 17 economists surveyed was for 2.8 per cent growth.

Today's report showed companies are cutting investment in plant and equipment to protectearnings, fueling concern about a recovery that's already under threat from deflation and arising yen. Prime Minister Yukio Hatoyama unveiled a 7.2 trillion yen ($89.5 billion) stimuluspackage yesterday, the first for his Cabinet, and the Bank of Japan last week decided a 10trillion yen credit program to support the economy.

EUR / USD against JPY exchange rate

"Japan's economy isn't in good shape and the outlook is cloudy,'' said Yuuki Sakurai, chiefexecutive officer of Fukoku Capital Management Inc. in Tokyo. "In the case of Japan, a crisishappens once in five years, not once in 100 years, so companies get scared of increasingbusiness investment.''

Investment by companies drove the downward revision in last quarter's growth. Capitalspending fell 2.8 per cent in the three months through September from the previousquarter. That compares with the 1.6 per cent increase reported last month.

Slower growth

The economy expanded 0.3 per cent in the third quarter from the previous three months,the Cabinet Office said, slower than the 1.2 per cent first reported.

Consumer spending, which makes up about 60 per cent of the economy, climbed 0.9 percent, compared with a 0.7 per cent gain initially reported. Exports increased 6.5 per centfrom the previous quarter, compared with the 6.4 per cent first published.

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Some exporters are scaling back their spending plans as the yen's rise to a 14-year highthreatens their profits and market share.

Toyota Motor Corp., Japan's biggest automaker, aims to cut capital investment by 70 billionyen from its initial plans for the year ending March, the most among major companies, aNikkei Inc. survey showed on Nov. 30.

Sony Corp., forecasting its first consecutive annual loss since its listing in 1958, said lastmonth that it will eliminate 250 jobs at its information devices unit to reduce costs. Thecompany will close down a factory in Miyagi Prefecture making magnetic heads and transfersome of its touchpanel production to China.

Falling prices

Falling prices have been squeezing profit at home, prompting the government to declarelast month that the country is back in deflation and push the Bank of Japan to do more tospur the economy. The central bank released a 10 trillion yen credit program last week, amove that Deputy Prime Minister Naoto Kan said yesterday had a "considerable impact'' onweakening the yen.

"Even though companies are trying to secure profits by reducing costs, they continue tostruggle to increase sales amid deflation,'' said Hiromichi Shirakawa, chief Japan economistat Credit Suisse Group AG in Tokyo. "While the nation may fall into an economic lull earlynext year, it will take time before employment returns to a full-fledged recovery, even asthe government's job measures serve as a safety net.''

Yesterday's stimulus includes employment subsidies, loan guarantees and incentives to buyenergy-efficient products. Japan has compiled four spending packages since September2008 totaling more than 29 trillion yen.

Avert recession

Hiroshi Miyazaki, chief economist at Shinkin Asset Management Co. in Tokyo, saidHatoyama's plan will probably ensure Japan averts another recession next year while failingto combat deflation.

Demand from Asia will be enough to sustain the export-led recovery, according toeconomist Ryutaro Kono.

"The likelihood of a double-dip recession may be limited thanks largely to the solid recoveryin China and the other emerging economies of Asia,'' said Kono, chief economist at BNPParibas in Tokyo.

Exports fell at the slowest pace in a year in October, the Finance Ministry said yesterday.Some companies are expanding in China to benefit from rising demand in the world'sfastest-growing major economy. Suzuki Motor Corp., Japan's third-largest motorcyclemaker, said on Dec. 1 that it will start operating a motorcycle factory in China in the firsthalf of 2010 after a one-year delay.

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Vocabulary List

English Japanese Comment, etc.slashedspendingrecessionGross domestic producmedian estimateearningsfueling concernunveiledstimulus packageoutlook is cloudydownward revisionexpandedConsumer spendingscaling backmarket sharecut capital investmentconsecutive

Exercises

1. Read and try to understand the above article2. Explain the underlined words and find sample sentences if possible3. Have a look at the graph "EUR / USD against JPY exchange rate" and comment on it

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