Japan economy shrinks as firms cut capex, recession looms

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Japan's economy shrank in the September quarter for the first time since last year.  (Reuters) Japan's economy shrank in the September quarter for the first time since last year. (Reuters)
SummaryJapan's economy shrank in the September quarter for the first time since last year.

April-June 2009, as companies turned more pessimistic about earnings from domestic and overseas markets.

In Japan's ailing electronics sector, Sony plans to reduce capital spending by 29 percent in the year to March 2013 and Panasonic plans a 27 percent cut, after incurring huge losses in their TV manufacturing businesses.

The companies are struggling to compete with more nimble rivals, such as South Korea's Samsung Electronics  and America's Apple Inc, and with a steady rise in the yen, which makes exports from Japan more expensive.

Analysts said Japanese companies face too many uncertainties to plan future spending with confidence and that is unlikely to change in the current quarter.

Resolving the protracted euro zone debt crisis is no nearer, U.S. tax increases and government spending cuts in early 2013 could tip America into recession unless Congress acts, and adding domestic uncertainty Japan's Prime Minister Yoshihiko Noda has promised to call a national election soon to break a political deadlock.

Masamichi Adachi, senior economist at JPMorgan Securities, said business investment would fall again in the fourth quarter as the global economy recovers only gradually.

If some of these uncertainties are removed, it is possible for things to improve, Adachi said.

He forecast capital expenditure will fall 0.5 percent in October-December and then rise 0.7 percent in January-March.

Japan's economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction following last year's earthquake.

But growth has stalled since then. Indeed, second-quarter growth was revised down in the latest figures by half to just 0.1 percent. The last quarterly economic contraction was in the Oct-Dec period of 2011, when GDP fell 0.3 percent.

With the economic affect of rebuilding from last year's earthquake and tsunami fading, the government acknowledged last week that its index of leading indicators gauge fell to a level suggesting the onset of a recession.

I can not deny the possibility that Japan has fallen into a recession phase, Maehara told reporters after the data was released.

He said he expected the BOJ to pursue powerful policy easing, although in a speech BOJ head Shirakawa stressed that flooding markets with cash alone wouldn't inflation the economy when interest rates are near zero. The government should boost the economy's growth potential with deregulation and structural reform, he said.

Exports and output are likely to remain weak, and

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