Japan yesterday cut its economic growth forecast for the fiscal year to 0.5 percent from 1.5 percent, citing the impact of the March 11 quake, tsunami and nuclear disasters.
For the next fiscal year, which starts in April, the government expects growth to recover to between 2.7 and 2.9 percent in the world’s number three economy, partly as a result of the post-disaster reconstruction drive.
The Japanese Cabinet Office report warned of risks ahead — especially the strong yen, which hurts exporters, as investors have rushed to the safe-haven currency amid financial market turmoil sparked by US and European debt woes.
“Our country’s economy suffered a sizeable contraction in real GDP for the January-March quarter because of the impact of the Great East Japan Earthquake,” the Cabinet Office said in its report.
“The Great Earthquake caused damage to production bases in disaster-hit areas and led to a huge decline in nationwide output,” said the report, which also stressed that after the quake “consumer demand plunged.”
The report forecast that industrial output would grow 1.5 percent, down from 2.5 percent projected earlier, due to the tsunami which cut supply chains and forced many companies to shutter plants and halt production.
The disaster also caused power shortfalls that have forced a summer-time electricity saving campaign.
Only 15 of Japan’s 54 nuclear reactors are now operating, with more scheduled to cease operations soon for regular checks.
The impact of the quake, Japan’s worst disaster in the post-war era, will see private consumption contract 0.2 percent this year from an earlier estimate of 0.6 percent growth, the report said.
The report also forecast an unemployment rate of 4.7 percent in the current fiscal year.
The real GDP outlook was broadly in line with one by the Bank of Japan last month. The bank cut its growth forecast for the year to March to 0.4 percent, and kept a projection of 2.9 percent growth for the next fiscal year.
“Looking to the future, we need to pay attention to the impact of the growing uncertainties in the global economy as well as of fluctuations of foreign exchange rates on the Japanese economy,” the report added.
The Japanese yen has been hovering near a post-World War II high of ￥76.25 to the US dollar. Last week, Japan staged a large unilateral currency market intervention in a bid to weaken its soaring currency and safeguard the nation’s budding post-quake recovery.