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Sat, Mar 09, 2002 - Page 21 News List

Japan's GDP shrinks 1.2 percent

MALAISE For all of last year, Japan's economy shrank 0.5 percent, the first full-year pullback in three years. One bright spot was an uptick in consumer spending


Workers of Japanese electronics giant Sony assemble parts of portable audio products at the company's Sakado plant in suburban Tokyo in December.


Japan's recession deepened in the final quarter of last year as business investment logged its biggest quarterly fall on record, putting pressure on Prime Minister Junichiro Koizumi to speed up plans to restore growth.

Gross domestic product, the broadest gauge of the economy's health, shrank 1.2 percent in the quarter, worse than economists had expected and the first time in nearly a decade output has fallen three quarters in a row, government data showed yesterday.

The slide translated into an annualized 4.5 percent fall, bigger than the 4 percent forecast on average by economists.

"It's a very serious recession," said Takashi Kiuchi, economic adviser at Shinsei Bank.

For all of 2001, the economy shrank 0.5 percent -- its first full-year contraction in three years.

Economics Minister Heizo Takenaka said the downturn may have hit bottom in the final three months of last year but that an official government target for 1 percent growth in the current fiscal year to March 31 was now in jeopardy.

"To be honest, the minus 1 percent forecast will be quite difficult to achieve," Takenaka said.

The figures reflected the full impact on the world's second-biggest economy from the Sept. 11 attacks on America and a confidence-denting outbreak of mad cow disease in Japan.

Business investment fell 12 percent in the quarter, its biggest slide ever under calculations dating back to 1980.

Some economists saw hope in a 1.9 percent rise in personal consumption, the biggest and most stubbornly weak area of the economy. Its strength is considered a crucial fuel for any rebound from Japan's third recession in a decade.

Other more recent evidence suggests consumers may be slowly loosening their purse strings. In January, for example, average household spending rose 0.8 percent from a year ago despite rising unemployment and widespread pay cuts.

"I am surprised to see a rise in private sector consumption. But I don't expect this figure to stay strong; I think it is probably merely a rebound from the previous quarter," said Seiji Shiraishi, market economist at Daiwa Securities SMBC.

Japan's financial markets dismissed the GDP as "old news" and continued a week-long rally on hopes of an export-led upturn on the heels of a recovery in Japan's biggest trading partner, the US.

Vice Finance Minister Haruhiko Kuroda said the currency's 2.5 percent rise against the dollar on Thursday was too fast.

"Movements in exchange rates in the past several days have been too rapid and do not reflect economic fundamentals," he told reporters. "It is a bit too abnormal ... and not appropriate."

A stronger yen could undermine the government's work in engineering a sharp drop in the currency last year to bolster the offshore earnings of major exporters like automaker Honda Motor Co, whose earnings soared to a record in October to December.

"I am watching the market movements with vigilance and will take appropriate action if needed," Kuroda said.

Japan's GDP last contracted for three straight quarters in 1993, but the drop in two of those quarters was smaller than 0.01 percent, making the current downturn the deepest since the dark years following the end of World War II.

The deepening recession raised pressure on Koizumi to unveil stronger steps to restore economic growth in a second instalment of anti-deflation steps expected as early as April.

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