Bloomberg News

Japan’s Economy Shrinks More Than Forecast on Export Slump

February 12, 2012

(Updates with economist’s comment in fourth paragraph.)

Feb. 13 (Bloomberg) -- Japan’s economy contracted more than economists forecast in the fourth quarter as exports slid on weakness in global demand and strength in the yen.

Gross domestic product shrank an annualized 2.3 percent in the three months ended Dec. 31, following a revised 7 percent expansion in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 26 economists surveyed by Bloomberg News was for a 1.3 percent decline.

A pick-up in earthquake reconstruction work may aid a return to growth this quarter even as gains in the currency pare export earnings, worsening losses for companies such as Sony Corp. The Bank of Japan may refrain from additional easing tomorrow as officials assess a mixed global picture, from improved U.S. employment to weaker Chinese trade and Europe’s progress in taming its debt crisis, according to a Bloomberg News survey of economists.

“The economy may have dipped into a contraction in the fourth quarter, but it would be temporary,” Seiji Adachi, a senior economist at Deutsche Securities Inc. in Tokyo, said before today’s data. “There’s no need to be overly pessimistic about the economic outlook as the overseas economies, such as the U.S., are starting to pick up.”

The nation’s currency climbed to a postwar record of 75.35 per dollar on Oct. 31, making exports less competitive. Manufacturers have also been hurt by flooding in Thailand that disrupted production, while energy imports because of nuclear shutdowns lead to the first annual trade deficit since 1980.

Quake Reconstruction

Parliament last week passed Prime Minister Yoshihiko Noda’s 2.5 trillion yen ($32 billion) recovery package from the earthquake and tsunami, the fourth supplementary budget since the disaster. The government will allocate 300 billion yen for the eco-friendly car subsidies as part of its fourth extra budget.

Public investment in reconstruction works, which was delayed mainly by administrative limitations, will start to kick in, said Masayuki Kichikawa at Merrill Lynch Japan Securities Co.

“If exports stop falling as the impact of the flooding in Thailand winds down, overall GDP is likely to return to growth,” Kichikawa said before the report.

Bank of Japan Governor Masaaki Shirakawa said last week that the economy is in a “severe” condition because of deflation and gains in the yen.

‘In a Lull’

“Japan’s economy is in a lull,” Kiichi Murashima, chief economist at Citigroup Global Markets Japan Inc. in Tokyo, said before the report. “Japan’s economy will likely remain vulnerable to a slowdown in global demand and the yen’s appreciation.’

Panasonic, the world’s largest maker of plasma televisions, said on Feb. 3 that it almost doubled its annual loss forecast to a record 780 billion yen because of Thailand floods and slowing demand for TVs.

Sony, Japan’s largest consumer-electronics exporter, said on Feb. 2 that it widened its full-year net loss forecast to 220 billion yen from the 90 billion-yen loss predicted in November.

The International Monetary Fund estimates that Japan’s economy will grow 1.7 percent in 2012, compared with a likely 1.8 percent expansion for the U.S. and an estimated 0.5 percent contraction for the euro area.

--With assistance from Eleanor Warnock and Theresa Barraclough in Tokyo. Editors: Paul Panckhurst, Lily Nonomiya

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

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

Steve Ballmer, Power Forward
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