Japan’s GDP Rises in 4th Quarter, but Concerns Persist
Japan avoided further humiliation today when the government reported economic growth of 0.8% in the fourth quarter. Many economists had forecast a second consecutive quarterly contraction, signaling Japan’s second recession in a year.
No matter whether or not you pin the recession label on it, however, the Japanese economy is in trouble. Gross domestic product figures are essentially a look back several months, and more timely data released recently draws a darker picture.
“Statistically, these numbers don’t matter so much to the markets,” said Tomoko Fujii, senior economist with Nikko Salomon Smith Barney. “Investors already think we’re in a recession-like situation.”
Business investment and manufacturing, the main drivers of growth during the three months ended Dec. 31, have been sharply hit in recent weeks by the U.S. and Asian slowdowns. And the benchmark Nikkei stock index has declined 40% over the last year. It fell as much as 3.3% today to nearly a 15 1/2-year low during midday trading.
The yen fell today to 120.61 to the dollar, its weakest since July 19, 1999, during midday trading as government debt is approaching 130% of GDP, the highest level of any major industrialized nation.
During the most recent quarter, personal consumption--which accounts for about 60% of economic activity--fell 0.6%. The government has worked overtime to pressure, chide and bamboozle the Japanese into opening their wallets and letting it all flow out. But without much faith that better times are ahead, or that the economy is in good hands, consumer sentiment is unlikely to improve.
“The government alone can’t fix our economic problems; it’s ordinary people who need to start buying again,” said Toshio Tamura, a 55-year-old Tokyo salaryman. “But most of my friends are worried about their jobs. And I’ve cut way down on eating out and don’t plan to make any big purchases.”
On other fronts, corporate investment during the most recent quarter grew by a strong 6.8%, according to government figures, and housing investment grew 4.4%. But much of the housing spending represents a rush to take advantage of tax incentives being chipped away. And more timely capital investment data suggest that companies are losing faith after machine orders fell a very sharp 11.8% in January.
“The GDP figures are old news now; going into this year things look pretty bad,” said Peter Morgan, chief economist at HSBC Securities (Japan) Ltd. “It’s nice, but it’s irrelevant.”
Net exports for the quarter, meanwhile, declined 0.3%. And overseas demand by U.S., European and Asian shoppers for autos, VCRs, televisions, electronic components and other Japanese products is waning.
The U.S. economy in the fourth quarter grew at its slowest pace in more than five years.
The other major economic plank--Japanese government spending--posted a 0.9% growth rate during the quarter that was largely attributed to a stimulus package put through in November. But for the longer term, the government is rethinking its massive spending-spree strategy as its debt overhang worsens.
As if Japan didn’t have enough problems, it also is struggling with a tumultuous and unstable political situation that is distracting economic policymakers. The woefully unpopular Prime Minister Yoshiro Mori is under enormous pressure to resign. But the dominant Liberal Democratic Party has long resisted any structural change that might hurt its electoral base of shopkeepers, farmers and inefficient construction companies, making the outlook for substantive change unclear.
“Mori hasn’t addressed the economic problems at all, so even if we change the prime minister’s face, nothing will change,” said Hiroshi Sakurai, economist with Mizuho Investors. “We need to overhaul the government.”
A lot also depends on who replaces the gaffe-prone Mori, a decision not yet made.
Looking ahead, economists say they expect the economy to show flat growth or a slight contraction for the next quarter. The situation is still not as bad as it was in 1997-98, when the banking system was in danger of collapsing, economists say. Declining prices give consumers more buying power, even without a raise. And the government stimulus package will provide a small boost in the January-March quarter. Still, a lot is riding on a hope that the U.S. economy will see a turnaround late this year.
“If the U.S. starts seeing 2% to 3% growth, Japan could see a significant change in its outlook,” said Tetsuro Sugiura, chief economist with Fuji Research Institute. “A lot of the economic weakness is coming from the sudden stagnation of the U.S. economy.”
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Rie Sasaki in the Tokyo bureau contributed to this report.
