Bloomberg News

Japan’s Economy Contracts at a More-Than-Forecast 3.5% Pace

June 09, 2011

(Updates yen level in sixth paragraph.)

June 9 (Bloomberg) -- Japan’s economy contracted more than economists estimated in the first quarter, underscoring the damage the March 11 earthquake and tsunami inflicted on capital spending and factory production.

Gross domestic product shrank at an annualized 3.5 percent rate in the three months ended March 31, the Cabinet Office said today in Tokyo, compared with the 3 percent median forecast of 23 economists surveyed by Bloomberg News. The government initially estimated a contraction of 3.7 percent last month.

Toyota Motor Corp. and Nissan Motor Co., which posted sales declines in May, are working to restore operations after the disaster caused a shortage of parts and power, pushing the economy into a recession. Analysts including Yoshimasa Maruyama say the report doesn’t alter predictions that the economy will gain momentum later this year as companies boost output and government reconstruction projects get underway.

“The supply chain disruptions have been easing at a faster pace than we expected, and it looks like companies will be investing in repairs relatively quickly,” said Maruyama, an economist at Itochu Corp. in Tokyo. “The second quarter contraction will be milder -- probably about half the pace of the first quarter. Once reconstruction spending kicks in in the third quarter, we’ll see a V-shaped rebound.”

BOJ Optimism

Bank of Japan Governor Masaaki Shirakawa said on June 1 that supply constraints are easing faster than expected as companies rush to repair their facilities and economists predict the economy will expand in the second half of the year as reconstruction work kicks in. Toyota predicts that its domestic output will recover to 90 percent of normal levels this month.

The yen traded at 80.04 against the dollar as of 12:53 p.m. in Tokyo, compared with 79.86 before the report was published. The Nikkei 225 Stock Average fell 0.5 percent on concern a strengthening yen would erode the earnings of exporters.

The central bank will consider raising its economic assessment for the first time since the March 11 earthquake when policy board members meet next week, the Nikkei Newspaper reported today, without citing where it obtained the information.

Government reports for April showed that factory production rose less than economists forecast and exports had the biggest drop since October 2009, signaling the economic contraction may continue this quarter. The unemployment rate also climbed in April and households cut spending.

Contraction Forecast

Japan’s economy may shrink at a 2.97 percent annual pace in the second quarter before returning to growth in the final six months of the year, according to the average forecast of 43 economists in a survey by the government-affiliated Economic Planning Association released yesterday.

Capital investment dropped 1.3 percent in the first quarter, compared with the previous estimate of a 0.9 percent decline, according to the data. Private inventories detracted 0.4 percentage point from GDP, better than the government’s initial 0.5 percentage point estimate.

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

“Supply-chain disruptions and power-shortage problems are being fixed more quickly than initially expected,” said Hiroshi Watanabe, a senior economist at the Daiwa Institute of Research in Tokyo. “Corporate profits will likely return to growth in the third quarter.”

Production Rebound

Machinery orders, an indicator of future capital spending, unexpectedly increased in March, while companies plan to boost industrial production in May and June.

Sharp Corp., Japan’s largest maker of liquid-crystal displays, said on June 3 that operating profit may rise 23 percent this year as the company boosts earnings from LCD and solar panels. The company resumed operations at its two biggest LCD factories in Japan on May 16 after suspending them due to a shortage of materials after the quake in March.

Consumer spending fell 0.6 percent in the January-March period from the previous three months, unchanged from the initial estimate, today’s report showed. Net exports, or shipments less imports, subtracted 0.2 percentage point from GDP, also the same as the preliminary reading.

From the previous quarter, the economy shrank 0.9 percent in the first three months of 2011, today’s report showed. The GDP deflator, a gauge of price trends, fell 1.9 percent in the first quarter from a year earlier, today’s report showed.

--With assistance from Aki Ito, Theresa Barraclough, Minh Bui, Makiko?Kitamura, Yuki Hagiwara and Mariko Yasu in Tokyo. Editors: Ken McCallum, Cherian Thomas

To contact the reporters on this story: Keiko Ujikane in Tokyo at

To contact the editor responsible for this story: Paul Panckhurst at

Toyota's Hydrogen Man
blog comments powered by Disqus