Finally some good news on the macro frontBut they'll still need a lot of copper as they rebuild...
Japan Economy Contracted Less Than Estimated
Japan’s economy contracted less thaneconomists estimated in the second quarter, signaling the nationis rebounding from a slump after a record earthquake and tsunamieven as a rising yen threatens to slow exports.
Gross domestic product shrank at an annualized 1.3 percentrate in the three months ended June 30, marking threeconsecutive quarters of declines, the Cabinet office said todayin Tokyo. The median forecast of 25 economists surveyed byBloomberg News was for a 2.5 percent drop.
Companies from Toyota Motor Corp. to Sony Corp. haverepaired facilities damaged by the March 11 disaster, spurringthe largest increase in industrial output since 1953 in May fromApril. Japan intervened in the currency market on Aug. 4 for thefirst time since March to stem yen gains against the dollar thatmay weigh on the recovery of the world’s third largest economy.
“Japan’s economy is getting back to normal from the post-quake slump,” said Hiromichi Shirakawa, chief Japan economistat Credit Suisse in Tokyo. “But dark clouds are looming overthe outlook for the global economy,” and that means “downsiderisks to Japan’s economy are increasing.”
The yen’s 5 percent climb against the dollar in the pastthree months has clouded the outlook for an economy that hasrelied on exports for growth. A stronger currency makes Japaneseproducts less competitive abroad and erodes overseas profitsrepatriated into yen. The yen has been stronger than the 82.59average rate on which companies have based their profitforecasts, according to a quarterly Bank of Japan survey ofbusiness activity.
‘Damaging Effect’
“The exchange rate is at a level that has an extremelydamaging effect on the Japanese economy,” Osamu Masuko,president of Tokyo-based Mitsubishi Motors Corp., said Aug. 4after authorities intervened in the foreign-exchange market forthe first time since March. “The resulting exchange rate stillisn’t acceptable.”
Toyota, the world’s biggest carmaker, expects to beginmaking up for lost output from the earthquake in September, onemonth earlier than previously announced, it said on Aug. 2. Thecompany is hiring up to 4,000 temporary workers to help thateffort.
A 15-yen change in the dollar-yen rate over the past yearhas “blown off” 300,000 yen, or $3,900, in profit on a $20,000car, and a stronger yen has cut Toyota’s fiscal first-quarteroperating profit by 50 billion yen, Takahiko Ijichi, thecarmaker’s senior managing officer, said on Aug. 2.
‘Flirting’ With Recession
Demand is also showing signs of weakening. Tokyo ElectronLtd., the world’s second-largest maker of semiconductorequipment, cut its net income forecast for the year ending inMarch by 49 percent to 34 billion yen ($442 million), citinglower than expected sales.
Japan’s economy is now “flirting with the possibility” ofanother recession, said Robert Feldman, head of Japan economicresearch at Morgan Stanley MUFG Securities Co. “Growth is goingto be weak if we have the supply side constraints from the powerside coupled with demand side problems, from foreign growth anda slow fiscal response.”
Policy makers are beginning to work on a third package forearthquake relief that Chief Cabinet Secretary Yukio Edano saysmay include measures to help businesses combat the strong yen.Prime Minister Naoto Kan has passed two budgets totaling 6trillion yen to clear debris and build temporary homes in thedisaster-hit northeast.
Growth Forecast
The government downgraded its growth forecast for Japanlast week, saying GDP will increase 0.5 percent in the yearstarted April, compared with its January forecast for a 1.5percent expansion. The changes reflect the March earthquake’simpact on output and consumer spending, the Cabinet Office said.
Most indicators from the quarter started July 1 point to aneconomic rebound, with industrial production rising for threestraight months since plunging in March. Companies are alsoforecasting they will boost output this month to make up forlost capacity resulting from the natural disaster, and sentimentamong merchants exceeded pre-temblor levels.
Machinery orders, a leading indicator for capital spending,also rose more than expected in June, a sign companies will rampup outlays as they restore their businesses.
“We’ll see considerably high growth in the third quartereven though the yen will start to temper that figure,” saidTatsushi Shikano, senior economist at Mitsubishi UFJ MorganStanley Securities Co. in Tokyo.
To contact the reporters on this story:Keiko Ujikane in Tokyo atkujikane@bloomberg.net
https://www.bloomberg.com/news/2011-08-15/japanese-economy-contracts-less-than-estimated-on-recovery-from-earthquake.html