Japan's Economic Fallout Worse than First Thought

Japan's Economic Fallout Worse than First Thought | East Asia and Pacific | English

Japan's economic minister says the damage to the country's economy from last month's earthquake and tsunami is worse than first thought.

Japan had estimated that the damage may total as much as $295 billion, a figure that did not include the cost of possible contamination of food and water from radiation leaks from the crippled nuclear reactors at Fukushima.

But on Tuesday, economic minister Kaoru Yosano said the blow to the Japanese economy is "larger than our original expectations." He did not make a new estimate but said the damage is "wide-ranging," hitting the northeast sector of the country with its sophisticated manufacturing industries.

Japan's infrastructure has been devastated and its manufacturing supply chains broken. Production at some of the country's largest manufacturers -- Toyota, Honda and Sony -- has been stymied. The International Monetary Fund has lowered its 2011 economic growth forecast for Japan, the world's third biggest economy, from 1.6 percent to 1.4 percent. But one economic research company (Capital Economics) says Japan's economy may shrink by 1.5 percent this year.

A month after the twin natural disasters, Japan has not decided how to refinance the recovery. Its public debt is already the industrialized world's biggest at about 200 percent the size of its economy.

Prime Minister Naoto Kan, whose political fortunes had plummeted even before the earthquake and tsunami, may be forced to sell more debt or raise taxes. Tax increases could further diminish Japanese consumers' confidence and willingness to spend as the scope of the nuclear disaster remains unclear. One survey that tracks confidence among merchants closest to the country's consumers showed it tumbled at the fastest pace ever in March

Japan quake to squeeze profit margins

Japan quake to squeeze profit margins | Reuters

Japan's government has downgraded its assessment of the economy for the first time in six months to reflect last month's devastating earthquake and tsunami, while wholesale prices rose at the fastest pace in more than two years in an ominous sign for company profit margins.

A loss of electricity from a crippled nuclear power plant and radiation leaks could weigh on the outlook for some time, the government warned on Wednesday, though it still expects the economy to recover later this year as reconstruction begins in the northeastern areas wrecked by the tsunami.

Higher input costs could also squeeze profit margins at companies struggling to secure enough parts to keep their factories running.

"The biggest risks, or uncertain factors for the economy, are when power supplies will recover, whether the nuclear situation will keep from worsening," Economics Minister Kaoru Yosano said.

"It will cause various indirect damage, such as dampening consumer sentiment, but the economy will pick up toward the end of this year."

Still, few analysts expect a convincing end to deflation in the near term as companies remain reluctant to pass on higher costs to consumers shaken by the world's costliest natural disaster.

he government's downward revision on the economy echoes that from the Bank of Japan (BOJ), which cut its assessment last week as policymakers slowly come to grips with the long-term impact of the natural disaster on March 11.

"The economy is showing weakness recently due to the influence of the Great East Japan Earthquake," the government said in its monthly economic report for April.

That compared with the previous month's report that said the pickup in the economy was only weakly self-sustaining and there was concern about the influence of the quake.

The government also downgraded its views on key sectors like exports, industrial production and private consumption. And it warned of downside risks to the outlook from power supply constraints, slow progress in restoring supply chains and the impact of rising oil prices.

It expects the weakness to continue for the near term but hopes policy stimulus and solid growth abroad will help fuel a recovery.

MARGIN SQUEEZE

Other data out Wednesday showed Japan's wholesale prices rose 2.0 percent in the year to March, the fastest annual gain since November 2008 and above the market forecast of 1.9 percent.

Higher commodity prices were part of the reason that wholesale prices accelerated, but supply shortages are also likely to apply upward pressure in April when many Japanese firms revise prices they charge each other, a BOJ official said.

"We see prices of steel and chemicals rising. These are industries that use a lot of electricity. Since there are electricity shortages, companies won't be able to make as much steel or chemicals as they could in normal times," said Tamai Chino, economist at Mizuho Research Institute in Tokyo.

"This will push up prices of these goods further and pressure earnings at companies that use those materials for final goods."

Nissan Motor Co said on Wednesday it would use three Japanese holidays in May to make up for some production lost due to supply disruptions after the magnitude-9.0 earthquake.

Toyota Motor Corp plans to stop production in five plants in Europe for several days in April and May due to a shortage of supplies from Japan.

The government cut its assessment on exports for the first time in four months, in part as car makers struggle to re-start production. Likewise, it cut its assessment on industrial output for the first time in five months and its view on private consumption for the first time in two months.

The BOJ, which projects a slight rise in the core consumer price index in the year to next March, is set to announce new projections on prices and growth in a semiannual outlook report due on April 28.

Japan has been mired in deflation, or debilitating price falls, for much of the past 15 years, so a bout of consumer price inflation might actually be welcome.

Gov't to rebuild local infrastructure in disaster-hit areas+

Gov't to rebuild local infrastructure in disaster-hit areas+

March - Japan’s Economy Takes a Hit

Japan’s Economy Takes a Hit | A New Japan

Discussion about the impact to consumer sentiment and whether April will be worse and how the economic impacts may be more lingering than usual due to electrical supply disruptions and consumer sentiment impacts by ongoing quakes and radiation fears

March - Slide in Japan exports signals prolonged weakness

Slide in Japan exports signals prolonged weakness - Yahoo! News

Japan's exports fell in March at a faster pace than economists expected, in a sign that shipments will continue to weaken and hurt economic growth after last month's earthquake and tsunami sparked a nuclear crisis and disrupted supply chains for many manufacturers.

The data offers the first glimpse of how the supply side has struggled since the natural disaster that struck Japan's northeast coast on March 11, and it suggests Tokyo's trade balance will swing to a deficit as some companies struggle with a shortage of electricity and needed parts.

Japan's economy is likely to contract in the second quarter and then resume growing in the third quarter as efforts to rebuild the northeast take hold. But damage to supply chains and factory output could linger, depriving the export-focused country of a vital contribution to gross domestic product and setting the stage for further easing by the central bank.

"As supply chains are expected to recover in late May, the drop in exports may prove short-lived," said Yuichi Kodama, economist at Meiji Yasuda Life Insurance.

"But due to power supply constraints expected in the summer, a full pickup in exports is unlikely until at least the end of this year. The Bank of Japan is likely to be prompted to ease its policy further in coming months."

Exports fell 2.2 percent in March from a year earlier, more than a median forecast for a 1.5 percent annual fall. That marked the first decline in 16 months. Imports rose 11.9 percent from a year earlier against a forecast for a 6.0 percent annual rise, trade data issued by the Finance Ministry showed.

Exports dropped 7.7 percent from February on a seasonally-adjusted basis. This was the biggest month-on-month fall since January 2009.

CAR EXPORTS TUMBLE

Exports of cars tumbled 27.8 percent from a year earlier, making the biggest contribution to the decline in overall exports. Semiconductors and electronics fell 6.9 percent from a year ago.

Among Japan's two major export destinations, shipments to China rose an annual 3.8 percent while shipments to the United States fell an annual 3.4 percent, the first decline since December 2009.

The trade balance came to a surplus of 196.5 billion yen ($2.38 billion), much less than the median estimate for a 493.6 billion yen surplus.

Global makers of products from cars to mobile phones are finding it harder to get the parts they need after Japan's earthquake and tsunami wrecked supply chains, and investors worry that the worst is yet to come for earnings.

Toyota Motor Co (7203.T) said it would cut U.S. vehicle production and might have to lower its full-year U.S. sales targets if parts shortages extend into the summer.

The fall in exports suggests that industrial production data for March, which is due on April 28, could also slow sharply. The Bank of Japan holds a policy meeting on the same day and will issue a twice-yearly outlook report on the economy and prices that includes long-term GDP and consumer price forecasts.

BOJ SEEN HOLDING FIRE

The BOJ is expected to hold off on any further easing next week but will consider giving clearer signals to the market that surging commodity costs alone would not shake its commitment to ultra-easy policy, even if they nudge up consumer prices, sources familiar with the central bank's thinking have told Reuters.

"The BOJ does not see the need to ease policy further anytime soon, given expectations for the economy's return to a moderate recovery after a temporary slump," said Takeshi Minami, chief economist at Norinchukin Research Institute.

"The timing of future easing would depend on the pace of recovery in output which is expected to pick up gradually."

The BOJ's next move might be to expand its asset-buying program or boost its outright JGB buying from the market, Minami said, adding that it could come as early as July when it reviews the outlook report and the government compiles a second extra budget involving more bond issuance to fund reconstruction.

Japan aims to compile this month an emergency budget worth 4 trillion yen, which will be followed by more spending packages, as it faces its worst crisis since World War Two after the 9.0 magnitude earthquake and a tsunami devastated its northeast.

Japan's economy is expected to contract in the current quarter but will grow again in July-September on reconstruction efforts, a Reuters poll showed. Some economists say gross domestic product may have contracted in January-March, meaning three straight quarters of contraction to June cannot be ruled out.

March - Restaurant sales fall record 10.3%

Restaurant sales fall record 10.3% | The Japan Times Online

Restaurant sales fell by a record 10.3 percent in March from a year earlier, as people refrained from dining out in the aftermath of the March 11 earthquake and tsunami, according to a survey by an industry body released Monday. 

The disaster in the Tohoku region caused damage to restaurant buildings as well as food distribution networks, and ensuing electricity shortages forced many eateries to shorten operating hours, the survey by the Japan Food Service Association said. 

These factors also contributed to the first drop in sales at the surveyed restaurants in nine months, the industry body said.The number of customers at the 30,860 restaurants surveyed fell 9.0 percent and average customer spending was down 1.4 percent. 

By type of restaurant, sales at pubs, including "izakaya," recorded the largest percentage of decline, of 19.8 percent, as many welcome and farewell parties, which usually peak in the spring due to the start of the school and business year in April, were canceled after the massive quake.

March - retail sales tumble, recovery likely uneven

Japan retail sales tumble, recovery likely uneven - Yahoo! News:

"Japanese retail sales fell in March at the fastest annual pace since 1998 and could remain weak for some time as last month's earthquake, radiation leaks from a damaged nuclear reactor and fears of electricity shortages weigh on consumer sentiment. 

The data, the first measure of consumption since the natural disaster on March 11, highlights the need for the government to quickly resolve the nuclear crisis, ensure power supply and help manufacturers restore damaged supply chains so they can produce more goods. 

The government will submit to parliament this week its first spending package worth almost $50 billion to rebuild the battered northeast coast after the earthquake, but it will need to spend a lot more in order for the economy to recover. 

'The worst will be over for consumption after April but it will take a long time before it returns to pre-quake levels,' said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities."