Tue, Aug 16, 2011 - Page 10 News List

Japan’s Q2 figures spark recovery hopes

UNEXPECTED PICKUP:Although Japan’s GDP in the quarter ending June contracted, experts expect growth will gradually return on the back of reconstruction demand


Workers load a container onto a cargo ship at a port in Tokyo yesterday. Japan’s economy contracted at a slower pace than expected in the second quarter as output and exports recovered from the deadly earthquake in March.

Photo: Reuters

Japan’s economy shrank less than expected in the April-June quarter, data showed yesterday, fueling hopes that its recovery from the March 11 quake and tsunami is on track.

Japanese Finance Minister Yoshihiko Noda said Asia’s second-biggest economy looked likely to grow again in the current quarter, although he warned of the risk posed by the strong yen, which hurts Japan’s exporters.

The Cabinet Office said Japan’s economy shrank an annualized 1.3 percent in the first full quarter since the nation’s worst post-war disaster — beating bleak market expectations of a 2.7 percent contraction.

The figures highlight that Japan’s economy has started to bounce back from the calamity, which killed more than 20,000 people, wiped out entire towns along the Pacific coast and sparked a nuclear emergency.

“It was negative growth, but not bad data,” Daiwa Institute of Research chief economist Mitsumaru Kumagai said.

“Our basic expectation now is to see gradual growth on the back of reconstruction demand,” Kumagai said.

On a quarterly basis, Japan’s GDP shrank by 0.3 percent in the quarter ending June, contracting 0.9 percent contraction in the -January-March period and falling 0.6 percent in the previous quarter.

Exports plunged by an annualized 18.1 percent in the April-June quarter, when earthquake and tsunami damage to factories in Japan’s northeast still hobbled supply chains, especially in the crucial auto and electronics sectors.

As the scale of the disaster weighed on the nation, private consumer spending, nearly two-thirds of Japan’s GDP, fell 0.1 percent quarter-on-quarter.

However, rebuilding efforts also stimulated the economy. Government consumption rose 0.5 percent and public investment increased 3 percent due to relief and reconstruction projects for the quake-hit areas.

Corporate investment grew 0.2 percent, said the data, which follow recent figures showing increases in industrial production and machinery orders, a key indicator of capital spending.

“Despite the damage done to supply chains, consumption of durable goods, such as televisions and air-conditioners, did not fall,” Kumagai said.

“Exports did fall, but not as sharply as expected,” he said.

“For July-September, it is reasonable to assume a return to growth,” he said.

Noda agreed, saying: “There is a strong possibility the economy will return to growth in the July-September period.”

“But there are factors posing downside risks to the economy, such as the yen’s strength,” he said at a news conference.

Recent global market turmoil sparked by the eurozone debt crisis and the uncertain US economic outlook has prompted investors to flock to the yen, which is considered a safe-haven currency.

The heavy buying has sent the yen soaring near its post-war high of ¥76.25 to the US dollar — a trend that hits Japan’s export sector by making its goods less competitive abroad and eroding repatriated overseas profits.

The yen was trading at ¥76.83 to the US dollar amid thin trade in Tokyo yesterday afternoon, from ¥76.76 to the greenback late on Friday in New York.

Japan’s government intervened in the forex market earlier this month in a bid to tame the yen’s rise and has signaled it is ready to do so again, as businesses have threatened to move factories abroad.

Companies have also warned of the risk of electricity shortfalls and higher prices as Japan goes through a summertime electricity saving campaign sparked by the Fukushima Dai-ich nuclear power plant crisis.

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