Japan's Q1 GDP shrinks less than initial estimate but nonetheless faces steep recession
09 June, 2020
Japan's economy braced for its worst postwar slump even as first-quarter GDP contracted significantly less than primarily thought, as the cornonavirus crisis slams the brakes on global growth and raises pressure on Tokyo to cushion the blow to business and consumers.
Banks are doing their bit to greatly help as lending rose at the most effective gross annual pace on record in May, an indicator companies were tapping loans to meet up immediate funding must survive slumping sales from the pandemic.
While U.S. and European policymakers have shifted from crisis-response to efforts to prop up growth, Japan is struggling to take action since it continues to concentrate on preventing a second wave of infection.
In an interview with Reuters, economy minister Yasutoshi Nishimura said Japan should primarily focus on back-stopping faltering businesses, suggesting the central bank should avoid pushing rates of interest deeper into negative territory.
"We're not at a stage yet where we want to stimulate consumption and inspire people to travel a whole lot. Efforts to stimulate consumption should wait a bit more," he said, when asked whether the Bank of Japan should do something to boost demand, such as deepening negative interest rates.
The world's third-largest economy shrank an annualised 2.2per cent in January-March, revised data showed on Monday, less than the 3.4per cent contraction indicated in a preliminary reading, as capital expenditure fared better than expected. Analysts had tipped a 2.1per cent contraction.
But few analysts were hopeful about the outlook for the entire year since capital spending data used to calculate the revised figures lacked enough responses - most struggling businesses appear never to have participated in the survey - and will be updated in July.
On the whole, Monday's revised gross domestic product (GDP) estimate confirmed Japan had slipped into recession - defined as two straight quarters of contraction - for the very first time in 4-1/2 years, even before lockdown steps to support the virus was set up in April.
"The upward revision to Q1 GDP displayed in the revised estimate is cold comfort considering that output is plummeting this quarter," said Tom Learmouth, economist at Capital Economics.
'EXTREMELY CHALLENGING' OUTLOOK
Senior economist at Oxford Economics, Stefan Angrick, concurred: "With the bulk of the impact from the coronavirus pandemic to be felt in Q2, the outlook for 2020 thus remains extremely challenging."
A series of recent data including exports, factory output and jobs figures suggested Japan is facing its worst postwar slump in today's quarter, an interval when Prime Minister Shinzo Abe announced circumstances of emergency requesting citizens to remain home and businesses to close.
Although the emergency was lifted in late May, the economy is likely to recover only moderately in coming months, underlining the pandemic's sweeping impact.
The surge in bank lending, shown in BOJ data also released on Monday, suggests companies are having to hoard cash just to stay afloat - and that the worst is yet to come.
The top of Japan's ANA Holdings Inc said the airline will cut unprofitable international routes to cope with the hit from the pandemic, according to the Asahi newspaper.
Tokyo policymakers are moving fast to avoid the bleeding.
Japan's parliament will get started deliberating on Monday a second supplementary budget to invest in part of a fresh US$1.1 trillion stimulus package that includes loan schemes and a framework to inject capital into struggling firms.
The BOJ eased monetary policy for just two straight months in April, concentrating on steps to help ease corporate funding strains.
The central bank will scrutinise at its rate review in a few days whether additional steps are needed. Nonetheless it sometimes appears maintaining its projection of a moderate economical recovery in the latter half of the year, sources said.
A surprise calm in markets could offer Japanese policymakers some breathing space before considering bolder steps.
Japanese shares climbed to a 3-1/2-month on top of Monday after an urgent upsurge in U.S. employment gave investors further confidence of a swift global recovery.
"If you look at the Japanese stock market, it certainly shows that additional monetary easing isn't necessary," said Ayako Sera, market strategist at Sumitomo Mitsui Trust Bank.
"The BOJ has recently done too much to react to the immediate crisis."
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