Japan’s economy showed signs of recovery yesterday from its quake-tsunami disaster, but a failure to contain the industrialized world’s biggest debt raised the prospect of a credit rating cut.
Factory output rose 1 percent in April, data showed, against a record drop of 15.5 percent a month earlier as the March 11 disaster shattered supply chains and crippled power stations, including the Fukushima Dai-ichi nuclear power plant.
The gain was lower than the 2.9 percent predicted in a poll of economists by Dow Jones Newswires and by the Nikkei Shimbun financial daily, but analysts welcomed the news as a signal of a brighter outlook.
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The effect of the earthquake was grave, said Japan Research Institute chief economist Hidehiko Fujii, but “the recovery trend as shown in forecasts is extremely strong. It is possible for production to be restored to pre-quake levels before summer.”
The economy slipped back into recession in January to March, contracting sharply after the disasters left about 25,000 dead or missing and devastated infrastructure and manufacturing facilities, plunging the nation into its worst crisis since World War II.
Many key component manufacturers are based in the worst-hit regions and suffered damage to their facilities from the magnitude 9.0 earthquake or were inundated by the giant wave that followed.
Industrial behemoths such as Sony Corp and Toyota Motors Corp were forced to halt some production.
However, while fears of a major electricity shortfall going into the summer have eased slightly, the situation remains volatile, analysts said.
Total domestic production of cars, trucks and buses plunged a record 60.1 percent year-on-year in April, according to the Japan Automobile Manufacturers Association, while exports fell 67.8 percent, another record.
Dampening the domestic outlook somewhat was data showing household spending fell 3 percent year-on-year for the second straight month with consumers holding off on areas such as entertainment and travel.
“The figures show that the levels of household earnings are lowering as a result of the stagnant economy and declining exports,” said Keiji Kanda, economist at the Daiwa Institute of Research.
The government also said unemployment stood at 4.7 percent in April, up from 4.6 percent in March and matching expectations, although the figures exclude data from regions most hit by the twin disaster.
Ratings agency Moody’s said yesterday it could lower Japan’s sovereign debt rating in three months over fears it will fail to contain a debt mountain that is twice GDP, the industrialized world’s largest.
“The review has been prompted by heightened concern that faltering economic growth prospects and a weak policy response would make more challenging the government’s ability to fashion and achieve a credible deficit reduction target,” Moody’s said in a statement. “Without an effective strategy, government debt will rise inexorably from a level which already is well above that of other advanced economies.”
Moody’s assigned a “negative” outlook in February on Japan’s Aa2 rating, which analysts said would probably lead to a downgrade.
“Although a [Japan government bond] funding crisis is unlikely in the near to medium-term, pressures could build up over the longer term, and which should be taken into account in the rating, even at this high end of the scale,” Moody’s said.
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