Japan extra stimulus likely, GDP fails to convince
Written on November 16, 2009
Japan’s government could agree as much as $30 billion in new stimulus measures on Monday as economic growth is likely to slow next year due to sluggish personal spending and rising inventories.
Economists doubt whether that amount will be enough to push up growth significantly as the Democratic Party-led government will fund the stimulus with money cut from a budget compiled by the previous administration.
Japan’s massive national debt means the Democrats don’t have the leeway to spend much more.
The economy grew 1.2 percent in the third quarter, nearly double the forecast and the fastest pace in more than two years, but that was partly due to stimulus that the previous government enacted. The better-than-expected headline figure also failed to mask signs of weakness in private consumption and factory output.
Finance Minister Hirohisa Fujii said the extra budget won’t exceed 2.7 trillion yen and the cabinet could announce the details later on Monday, Kyodo news reported.
“The size of the stimulus comes from what they’ve cut elsewhere, so the effect on the economy could be close to neutral,” said Satoru Ogasawara, economist at Credit Suisse in Tokyo.
“Strength in domestic demand will likely continue for the remainder of this year, but we expect some softness in the economy next year.”
Japan’s gross domestic product (GDP) growth was much faster than the median estimate for 0.7 percent growth and was the largest gain since the first quarter of 2007. It compared with a revised 0.7 percent expansion in the second quarter of this year, which was the first growth in five quarters.
For a graphic of Japan, U.S. and Euro zone GDP, click r.reuters.com/car69f
MINISTER LEAKS FIGURES
In a headache for Prime Minister Yukio Hatoyama’s cabinet, Trade Minister Masayuki Naoshima leaked the GDP numbers to oil industry executives shortly before the embargo time, raising questions about the two-month old government’s ability to handle confidential information.
December 10-year JGB futures eased to 138.74 after the GDP data, but later reversed course and climbed to 138.93 on concern that the economic growth will lose traction.
“The economy is expected to continue to recover as overseas economies improve,” National Strategy Minister Naoto Kan told reporters after the data.
“At the same time, the employment situation remains very bad and downside risks exist in overseas economies.”
Kan added that he saw signs Japan was entering deflation and wanted to work closely with the Bank of Japan to avoid deflation from deepening. Deflation can hurt the economy because a pattern of falling prices causes consumers and businesses to delay purchases, dragging the economy down further.
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