Japan’s economic slide likely to trigger faster stimulus

measures to end the nation’s third recession in a decade.
Household spending had the largest back-to-back quarterly drop since the global financial crisis, the Cabinet Office said last week.
The figures contrast with comments by Japan’s central bank, which refrained from adding more stimulus today, that the economy’s main challenge is one of supply chain disruptions caused by the earthquake, tsunami and nuclear crisis.
Prime Minister Naoto Kan, whose public approval rating is less than 30 percent, has held off on outlining the scale of further reconstruction spending as officials gauge the impact of an initial 4 trillion yen (US$49 billion) package.
BOJ Governor Masaaki Shirakawa has taken a similar stance since the central bank expanded its asset-purchase fund on March 14.
“Speed is key here, and the government needs to act,” said Yoshimasa Maruyama, a senior economist at Itochu Corp. in Tokyo. A delay in the second budget is not only going to postpone the economy’s return to growth, but it’s also going to reduce Japan’s capacity to grow in the long run. Companies aren’t going to invest in a country that takes forever to rebuild itself.”
GDP shrank an annualised 3,7 percent in the three months ended March, almost double the pace that economists projected and the biggest contraction since the financial crisis. Consumer spending slumped 0,6 percent, worse than economist projections for a 0,4 percent drop.
Households cut back on eating out and entertainment after the disaster disrupted power and transportation and left more than 24 000 dead or missing. Companies also slashed spending on plant and equipment and drew down on inventories.
“I see this as only a temporary phenomenon,” Economic and Fiscal Policy Minister Kaoru Yosano said in Tokyo last week.
He said the situation was “fundamentally different” from the financial crisis, when demand plunged globally.
The BOJ’s Shirakawa has repeatedly said since the quake that the economy will recover as power shortages and supply constraints recede later in the year.
Tokyo Electric Power Co. reported a 1,25 trillion yen loss today, exceeding the largest corporate loss so far, Nippon Telegraph & Telephone Corp.’s 812 billion yen deficit in the year ended March 2002, according to data compiled by Bloomberg.
Japanese banks are resisting government calls for lenders to support Tokyo Electric by forgiving loans or easing interest charges. Masayuki Oku, chairman of the Japanese Bankers’ Association, said banks aren’t considering writing off or cutting interest payments on existing loans.
Japan’s GDP is now near a 20-year low in nominal terms, a reminder of the entrenched deflation that was weighing on growth even before the temblor disrupted production and spending.
The Bank of Japan’s policy board unanimously voted today to maintain a 30-trillion yen credit programme and a 10 trillion yen asset-purchasing fund that represents the bank’s main policy tools, and kept the benchmark overnight rate at zero to 0,1 percent. Deputy Governor Kiyohiko Nishimura dropped the proposal he made last month of expanding the fund to kickstart growth.
The yen was little changed after the central bank’s decision, trading at 81,72 against the dollar.
All 14 economists surveyed by Bloomberg News expected no change in monetary policy. – Bloomberg.