Bank of Japan (BOJ) Governor Masaaki Shirakawa said the economy was likely contract in the first half mainly because of stalled production after the earthquake and tsunami last month, the Wall Street Journal reported yesterday.
“We are now expecting production and GDP will decline in the first quarter and the second quarter,” Shirakawa said in an interview with the newspaper on Friday.
He said stalled production was the “heart of the problem” facing the Japanese economy in the aftermath of the massive March 11 earthquake and tsunami, which has left 26,455 dead or missing.
The disasters damaged production facilities and atomic power plants in the northeast, triggering the world’s worst nuclear crisis since Chernobyl and resulting in power shortages and disruptions to the supply chain.
Shirakawa told the paper the disruptions to production could last until at least August owing to the power shortages caused by the nuclear crisis.
His comments are in tune with analysts, who have said they expect the disaster will force the world’s third-largest economy to contract in the first half.
The central bank will hold a policy meeting on Thursday and release its semi-annual report on the economic outlook.
On April 7, the bank left its key rate unchanged at between zero and 0.1 percent and downgraded its view of the economy.
Japan’s biggest companies are still trying to gauge the full impact of the catastrophe, which forced the likes of Toyota, Honda and Sony to shutter plants.
The IMF earlier this month cut its growth forecast for Japan this year to 1.4 percent, compared with 1.6 percent before the quake.
The Organisation for Economic Cooperation and Development (OECD) on Thursday slashed its forecast to 0.8 percent growth, from its previous expectations of a 1.7 percent expansion.
However, massive government and business investment in reconstruction will drive a sharp rebound next year, with the economy seen expanding 2.3 percent, the OECD said, revising up its previous estimate of 1.3 percent given in November.
Japan estimates the cost of rebuilding from the quake and tsunami could be as much as ¥25 trillion (US$303 billion).
The Cabinet on Friday approved a ¥4 trillion extra budget to help fund reconstruction.
The government said it would not issue fresh bonds to finance it, but planned to divert some funds from welfare programs.
However, Japanese Prime Minister Naoto Kan, under pressure to reduce the nation’s huge debt at about 200 percent of GDP, said a “sizeable” second extra budget would be necessary, which would be financed by a government bond issue.
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