Japan's slump may mark trough in recession

A shopper picks up a small bag in a luggage shop in Tokyo yesterday. Japan's economy shrank at the fastest pace on record in the first quarter as demand for its cars, electronics and other goods slumped amid a deepening global recession.Photo: AFP

The Japanese economy's nosedive in the first quarter may mark the low point in its worst post-war recession, but a swift recovery seems unlikely given its reliance on exports, analysts said Wednesday.
Japan has "hit bottom with a bang," said Macquarie Securities economist Richard Jerram, noting that economic output is now the lowest since 1992.
Although a rebound is expected to begin in the second quarter of 2009, "it is going to be a long, hard slog," he warned.
The world's second largest economy logged its worst performance on record in the first quarter of 2009, contracting 4.0 percent from the previous quarter -- and 15.2 percent on an annualised basis.
Japan, which still bears the scars from its 1990s "lost decade" of economic stagnation, posted an unprecedented fourth straight quarter of negative growth.
Gross domestic product has shrunk 9.1 percent from its peak in the first quarter of 2008, noted JP Morgan economist Masamichi Adachi.
The good news, say experts, is that it surely cannot get any worse. The bad news is that a meaningful recovery is unlikely for some time yet.
"The sharp contraction has now ended but we're not going to easily move to a sustainable recovery path," said Hiroshi Shiraishi, economist at BNP Paribas.
"There will be a bit of a bounce in GDP in the next couple of quarters but then probably the economy will return to negative growth," he predicted.
Morgan Stanley economist Takehiro Sato said the economic slump had climaxed and the economy looked set to enter a recovery phase in the April-June quarter.
Corporate capital spending could rise for the first time in five quarters while consumer spending should get a boost from the government's cash handouts, part of a series of stimulus spending packages, he said.
Japan suffered a sharper contraction than the United States or the eurozone in the first quarter as its export engine went into reverse.
Japan's exporters were hit particularly hard because of the type of goods they produce: big ticket items such as cars and televisions that are often bought on credit by consumers in the United States and Europe.
As exports slumped, companies slashed production to reduce their stockpiles of unsold goods. With that inventory adjustment winding down, they are gradually ratcheting up output again to bring it in line with demand.
Recovery hopes were boosted by rises in both exports and factory output in March from the previous month.
At worst, the economy will shrink at a slower pace in the second quarter, said RBS Securities analyst Junko Nishioka.
"It may be possible that GDP will post slight positive growth. In light of the weakness of domestic demand in the first quarter, however, we think it will not be sustainable growth," Nishioka added.
Rising unemployment is one major worry. Japanese manufacturers have announced massive job cuts in recent months in response to huge losses.
The country's manufacturing sector is still too bloated given the current weak demand and will need further streamlining, experts said.
Rising job losses are expected to weigh on household spending, although there have been some signs of an improvement in consumer sentiment, helped by a recovery in the stock market.
The jobless rate hit a more than four-year high of 4.8 percent in March and analysts predict that it will top its post-war peak of 5.5 percent -- last seen in April 2003 -- before the shockwaves from the current recession subside.
That could pile pressure on Tokyo to take further action.
"We believe the government is likely to face pressure to implement additional fiscal measures before the end of this year to shore up economic activity," analysts at Daiwa Securities SMBC wrote in a note.