14 May 2003, 15:22  Japanese Economy Probably Grew at Slowest Pace in Year as Exports Declined

Tokyo, May 14 (Bloomberg) -- Japan's economy probably grew at its slowest pace in a year in the first quarter as stocks slid and Nikon Corp. and rivals sold fewer goods abroad, undermining a recovery from the third recession in a decade. Growth in the world's second-largest economy probably slowed to 0.1 percent from 0.5 percent in the fourth quarter, according to the median forecast of 32 economists surveyed by Bloomberg News. The government will release its gross domestic product report at 8:50 a.m. on May 16. Exports fell for two of the period's three months as war in Iraq sapped global demand and may drop further because of a deadly virus in Asia and a weak dollar. The slump helped drive the Nikkei 225 Stock Average to a 20-year low last month, putting pressure on Prime Minister Junichiro Koizumi to prop up the stock market.
The stock-market's tumble ``has the potential to make the economy worse by suppressing company profits,'' said Takanobu Igarashi, chief economist at UFJ Institute Ltd. ``The government needs to stem the drop before it becomes a dagger that kills the battered economy.'' The Nikkei, which dropped 27 percent in the past year, rose 0.7 percent to 8244.91 at the 3 p.m. close of trading today in Tokyo as investors expected a meeting of economic ministers to announce measures today to boost share prices. Japanese 30-year bonds rose yesterday, driving yields to a record low, on prospects that the yen's 9.5 percent gain in the past year will push down prices of imported goods, extending five years of deflation.
Deadly Virus
Exports probably fell 0.1 percent in the first quarter after a 4.1 percent gain in the fourth quarter, according to the Bloomberg survey. The decline is hurting companies such as Nikon, the world's biggest maker of machines to print circuitry on silicon wafers, as customers such as Intel Corp. reduce orders. Nikon this week said its group net loss for the year ended March 31 widened by a third to 8.14 billion yen ($69.5 million). Tokyo Electron Ltd., the world's second-largest supplier of chip-making equipment, last month said it expects to post a third straight annual loss for the year ending March 31 because of a global slump in orders. The company will cut 1,000 jobs by March 2004 to cut costs, it said. The yen's gains against the dollar will probably hurt profits of Honda Motor Co. and other exporters, economists said. The yen was at 116.74 at 6:37 p.m. in Tokyo from 116.78 late yesterday in New York. The spread of severe acute respiratory syndrome in Asia will further hurt exports by sapping demand in a region that accounts for two-fifths of Japan's overseas sales. More than 90 percent of the world's 552 SARS fatalities have been in Asia.
Spending
``Exports have clearly slowed and SARS will be a further negative impact,'' said Masaki Kuwahara, an economist at Nomura Research Institute. Consumer spending, which makes up half the economy, isn't likely to counter the decline in exports, economists said. Consumers are limiting spending as wages fell for 23 straight months to March and the jobless rate held near a 5.5 percent record-high. ``Households have been cutting into savings and this is growth that can't continue,'' said Matthew Poggi, economist at Lehman Brothers Japan Ltd. Lower share prices are also inflicting investment losses on companies such as Matsushita Electric Industrial Co. The world's biggest consumer-electronics maker said it had its first-ever consecutive net loss in the business year ended March 31, after taking a 52.6 billion yen charge on lower value of its shareholdings. Falling stock prices ``just add to the bad news, and we see consumer spending tightening up even more,'' Takuya Goto, president of Kao Corp., Japan's biggest households goods maker. Koizumi's government is considering steps to boost stocks, including easing rules on the transfer of an estimated 2.2 trillion yen of pension funds managed by companies to the state, according to figures from Nomura Securities Co.
Missing the Target
Company pension funds have been selling shares because current rules make it difficult for many funds to transfer stock to the government. Easing the rules would reduce share-selling, analysts said. Still, these steps ``are missing the target because they are all aimed at preventing the selling, instead of encouraging people to buy,'' said Soichi Okuda, a senior economist at Aozora Bank Ltd. Japan's central bank is also under pressure to act by increasing purchases of government bonds or taking other steps to pump more money into the economy. Bond purchases have been the bank's main policy tool since it cut rates almost to zero in March 2001. The central bank holds its monthly board meeting next week. Business spending was probably the biggest contributor to growth in the first quarter, posting a 0.9 percent gain from the previous quarter, according to the survey. Japan's economy probably grew 2.8 percent from a year earlier, according to the Bloomberg Survey. It probably grew at an annual 0.4 percent pace. //www.bloomberg.com

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