Bloomberg News

Japan May Escape Recession Tag as ‘V-Shaped Recovery’ Beckons

June 02, 2011

June 3 (Bloomberg) -- Japan’s slump after the March 11 earthquake, tsunami and nuclear crisis may be too short-lived to be called a recession, economists advising the government say.

“The plunge was rapid and steep, but the economy was fortunately able to bottom out very quickly,” Yuji Shimanaka, chief economist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo, said in an interview. “What will follow now is a V- shaped recovery.”

Shimanaka and Koichi Haji, members of a seven-member panel that advises the Cabinet Office on business cycles, say the contraction is likely to be shorter than the five-month minimum for an official recession.

The world’s third-biggest economy may be emerging from the worst of the disaster that devastated north-eastern coastal regions, killed thousands and crippled Tokyo Electric Power Co.’s Fukushima Dai-Ichi nuclear plant. Industrial output grew in April and faster-than-expected repairs to supply chains will aid a recovery, Bank of Japan Governor Masaaki Shirakawa said this week.

Reconstruction work may help to drive a rebound, with parliament last month approving an initial 4 trillion yen ($50 billion) spending package. In addition, utilities are rushing to boost gas generation after shutdowns of nuclear power stations.

According to Shirakawa, supply constraints are “being relaxed more quickly than expected initially as a result of strenuous efforts by firms.”

Housing Boom

Toyota Motor Corp. predicts that its domestic output will recover to 90 percent of normal levels this month, while Sekisui House Ltd., the nation’s second-largest home builder, says that the reconstruction work may spur the nation’s biggest housing boom in at least 15 years.

Haji, chief economist at NLI Research Institute in Tokyo, said that the economy is likely to have contracted only in March, April and perhaps May, and forecast a 0.1 percent expansion in gross domestic product this fiscal year.

At the same time, a recovery may be hampered by political infighting, damaged business and consumer confidence, and lingering limits on power supplies. While Prime Minister Naoto Kan survived a no-confidence vote yesterday, disunity in the ruling party is hampering his efforts to spur growth while also containing the nation’s debt burden.

Takeaki Kariya, also a member of the committee, is not as optimistic as Shimanaka and Haji. He sees as much as an 80 percent chance of the government declaring a recession.

‘Temporary Fireworks’

“People talk about how reconstruction will kick-start growth, but that money’s just temporary fireworks,” the Meiji University business professor said in an interview last month. “The real worry is that all these companies are re-evaluating whether to keep their facilities in Japan. Combined with the country’s poor prospects for growth, there’s a real risk that all our money shifts abroad.”

The advisory panel focuses on the coincident index, a composite of 11 monthly figures that is the broadest indicator of economic health.

GDP contracted an annualized 3.7 percent in the first quarter after also shrinking in the final three months of last year. A 3 percent annual decline in April through June will be followed an expansion of 1.9 percent in the third quarter and 5.5 percent in the fourth, according to a Bloomberg News survey of economists.

--Editors: Paul Panckhurst, Lily Nonomiya

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To contact the reporter on this story: Aki Ito in Tokyo at aito16@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net


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