Thu, Aug 28, 2003 page12

• Weather puts chill on Japanese recovery

  • NY TIMES NEWS SERVICE
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  Just as the bulls were starting to return to Tokyo, Japan's economy appears to have hit a bump on the road to recovery. The culprit this time is not the banks or a major corporate collapse, but the coldest summer in a decade.

  In theory, a few extra weeks of rain and chill should not derail a US$4.4 trillion economy. But in Japan, where most full-time workers receive their bonuses in June and July and take vacations in August, the summer months are akin to the Christmas shopping season in the US.

  For companies in a range of industries, from beverages to electronics to travel, the months from June to August are crucial. Yet temperatures in Tokyo have been almost 3?C below average and the capital has received just two-thirds as much sunshine this summer, hurting sales of everything from bathing suits to beer.

  The cold snap and longer-than-usual rainy season, which typically ends in early July in Tokyo, could shave as much as half a percentage point off Japan's growth rate in the July-September quarter, according to some estimates, a significant amount considering that the economy grew at an annual rate of 2.3 percent from April to June.

  "We're already seeing an impact from the summer blues on retail spending, and the dreary holidays in August may have killed leisure spending as well," said Ryo Hino, an economist at J.P. Morgan Securities in Tokyo.

  While not enough to bring on a recession, the slower sales could dent the largest and most vulnerable part of the economy - consumer spending. They may also force Prime Minister Junichiro Koizumi to consider more pump-priming measures.

  Companies, however, are not waiting for government handouts; they are cutting sales and profit targets. Supermarket chains, like Ito-Yokado, Seiyu and Aeon, and Japan's two largest beer brewers, Asahi and Kirin, recently cut their earnings forecasts sharply.

  Overall, supermarket sales plunged 5 percent in July compared with a year ago, while spending at convenience stores fell a record 7.3 percent. Sales at 7-Eleven Japan, the country's largest chain of convenience shops, tumbled 4.9 percent even though managers reintroduced oden (various foods simmered in a fish broth, similar to the Chinese hot-pot) and nikuman (a meat-filled dumpling), two foods suited to colder weather, according to a company spokesman, Tetsuhiro Kaneko.

  Electronics companies like Matsushita Electric Industrial and Toshiba say sales of air-conditioners fell almost 30 percent this July, in line with the industry as a whole.

  The colder, wetter weather has also put a damper on Japan's ?10.8 trillion (US$90 billion) travel industry. Most major railways have had fewer travelers this summer. The airlines likewise had fewer passengers on international routes though the airlines reported small gains in domestic traffic.

  Every cloud, though, has a silver lining. Earlier this year, the Tokyo Electric Power Co was forced to shut its nuclear power plants for safety inspections, leading analysts to predict that Tokyo would face brownouts if the summer was hotter than usual. The unseasonably cool weather, though, led to a record decline in power consumption last month, giving the utility some breathing room to restart its power plants.
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