Containers are seen at an industrial port in Kawasaki. Photo: REUTERS file

Japan's economy to shrink at fastest pace in decades this fiscal year

By Kaori Kaneko

Japan's economy will shrink at the fastest pace in decades in the year through March 2021, forcing the government to compile another stimulus package to cushion the blow from the coronavirus pandemic, a Reuters poll showed on Friday.

Many respondents predicted the Bank of Japan's (BOJ's) next policy step would be to expand stimulus, but they do not see the pandemic triggering a banking sector crisis this year.

The world's third-largest economy is forecast to contract 5.3% this fiscal year, a July 3-9 poll of over 30 economists shows, the most it has shrunk since comparable data became available in 1994.

It will rebound 3.3% next year, according to the poll.

The economy will grow at an annualised 10.0% pace in the current quarter of the calendar year 2020 after having shrunk 23.9% in the second quarter ended June, the poll shows.

"It would take two to three years for economic activity to return to normal levels in Japan as its overseas markets are likely to continue suffering from the spread of the virus," said Atsushi Takeda, chief economist at Itochu Research Institute.

Two-thirds of economists polled expect Japan to compile its next stimulus package this year to ease the pain on companies and households. Japan has so far rolled out two packages totalling $2.2 trillion.

Arata Oto, market economist at Societe Generale Securities Japan, expects the next stimulus package to be worth about 1-2% of the country's gross domestic product.

The package "would aim at accelerating Japan's recovery ... once there are more signs the pandemic is beginning to subside, or to help further cushion the blow from COVID-19 if the likelihood of a second wave heightens", he said.

Globally, more than 12 million have been infected by the virus and over half a million people have died. In Japan, more than 21,000 people have been infected and over 900 killed.

Policy support for hard-hit firms should help counter worries about Japan's financial system, over 90% of economists surveyed said.

Asked about BOJ's next move, 26 of 40 economists said they expect it to expand its stimulus, with 18 saying it would happen this year and five predicting it would be next year.

At next week's rate review, the BOJ is expected to roughly maintain its view the economy will gradually recover this year from the virus-led downturn, sources have said, even as fears of a second wave of infections cloud the outlook.

Japan's core consumer prices, which exclude volatile fresh food but includes energy costs, will drop 0.4% this fiscal year and rise 0.3% next fiscal year, the latest poll showed.

© Thomson Reuters 2020.

©2020 GPlusMedia Inc.

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Japan's economy to shrink at fastest pace in decades 

Fully re-open the economy already.

forcing the government to compile another stimulus package

Isn't the J government already trillions of yen in debt?

0 ( +3 / -3 )

Another stimulus package?

Just when I have gotten used to ramen and bread crusts!

7 ( +7 / -0 )

No doubt Abe would use the pandemic as an excuse to mask his utter incompetence. Abenomics is a joke!

5 ( +6 / -1 )

Let the money printing press roll full steam ahead!

4 ( +4 / -0 )

forcing the government to compile another stimulus package 

How so?

It is a feasible option to NOT compile ANOTHER “stimulus package”, and let things be. (Or even do some 3rd arrow reform, rather than only 2nd arrow “flexible spending”)

These packages never create any stimulus except amongst the cronies who produce small, flimsy, ugly face masks and the like, at Darth Abe’s whim.

They mainly create more future debt for tax payers to worry about, more incentive to save money or invest it offshore where there has been genuine growth, while Japan has been floundering around with these dopey borrow-and -spend schemes annually.

0 ( +1 / -1 )

The notion of borrow-and-spending out of the coronavirus recession is just daft.

0 ( +1 / -1 )

I agree with all of the above, what I add will distress some. And it's OK to disagree. The economy was in a spiral before the virus, if you remember there were stimulus spending before the virus many. The problem (I think) is the government just can't be fiscally responsible virus or not. They want every day to be the same for their own comefort forgetting completely the comefort of those same people who pay to make them comefortabley numb. It's beyond not fair.

0 ( +0 / -0 )

Words failed me because the Japanese government is still spending money buying fighter jets from usa when they are preparing for japanese economy shrinkage.

-1 ( +0 / -1 )

"These packages never create any stimulus except amongst the cronies who produce small, flimsy, ugly face masks and the like, at Darth Abe’s whim."

Time for Econ 102, Basic Macroeconomics. The Equation of National Income is: GDP = C + I + G + (EX-IM)

In words that says Gross Domestic Product is the sum of consumption, investment, government spending and net exports. Currently in Japan C and I are falling. If you cut G, GDP will fall even further and accelerate the decline in economic output. Economists all over the world therefore understand that when GDP is falling a way to reverse the decline is to increase government spending. Where the stimulus goes matters as you want the greatest multiplier effect possible. What is a multiplier effect? Well, increasing G increases GPD by the same amount. But the money added to the economy by the increase in G also leads to increases in Consumption, C and Investment, I. Thus for every yen or dollar increase in G, the GDP rises more. The judgement call comes when deciding which recipients of that increase in G will boost GDP by the most. That is not a straightforward call and calls for considerable econometric modeling, some good guesses and luck.

-1 ( +0 / -1 )

"Words failed me because the Japanese government is still spending money buying fighter jets from usa when they are preparing for japanese economy shrinkage."

Aside from what I wrote above regarding the Equation of National Income, China considers some Japanese territory to be theirs, including Okinawa and they are intent on someday settling scores for WWII. I have a Chinese wife. Take if from me the Chinese have been taught to hate Japan and to desire revenge. If Japan is not well defended you better start learning Mandarin now. You will need it to send your tax return to Beijing.

0 ( +0 / -0 )

The future of Japan is to work together with China. The rest is nonsense, with or without fighter jets from USA.

0 ( +0 / -0 )

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