February 13th, 2012
Econintersect: Japan had the third quarter of economic contraction in the past four with a GDP decline at the annual rate of 2.3% in the fourth quarter of 2011. The decline was much larger than had been expected with consensus estimates averaging -1.3%. The big drags were lost production for Japanese products in Thailand, which was ravaged by flooding, and a sharp decline in exports, particularly to China and the Eurozone. The slowdowns in those two regions added to the drag of a stronger yen which reached Y75.35 vs. the U.S. dollar in the quarter. The yen has appreciated 100% against the dollar over the past 20 years and more than 200% over the past 30 years.
The outlook for 2012 is better. Reconstruction from the devastating earthquake and tsunami last March will be more strongly underway in the coming year. And exports are expected to improve. From the Financial Times:
Real GDP growth for the full calendar year is expected at 1.7 per cent, according to Bloomberg. While that is well short of the 2.2 per cent global average, it is more than double the average growth rate Japan has achieved since 1995.
“Provided that the US and global economy can continue to grow, a recovery in Japan’s exports on top of reconstruction demand could allow the economy to make up for the slack seen late last year,” said Takuji Aida, an economist at UBS, before the release of Monday’s data.
Some are urging Japan to increase inflation, which the Bank of Japan has been targeting for a range centered on 1%. However, as of December core CPI was down 0.1% over the previous year. And Japan has been suffering from persistent deflationary pressures for a long time – there has not been annual inflation as high as 1% for the past 15 years.