Feb 17, 2015

    More stimulus expected as Japan exits recession


    JAPAN'S economy limped out of recession in the last quarter of last year, official data showed yesterday, but analysts said the weaker-than-expected growth would likely press the central bank to introduce fresh stimulus measures.

    The 0.6 per cent expansion in the world's No. 3 economy in October to December - or 2.2 per cent on an annualised basis - follows two consecutive quarters of contraction that came as an April sales tax rise hammered consumer spending.

    But economists had expected a stronger 0.9 per cent expansion on-quarter, and over the full year the preliminary data showed zero growth, compared with 1.6 per cent in 2013. Revised figures will be released in the following weeks.

    In contrast, the United States economy grew at its fastest pace in four years last year, expanding 2.4 per cent.

    "While Japan's economy has finally left the tax-related weakness behind, the increase in (fourth-quarter gross domestic product) fell short of expectations and supports our view that the Bank of Japan (BOJ) will announce more stimulus in April," said Marcel Thieliant from Capital Economics.

    "Today's result indicates that the BOJ's view on growth is too optimistic, and we still believe that the bank will announce more easing at the late-April meeting."

    The news was welcomed by markets, with the benchmark Nikkei stock index climbing 0.51 per cent to end above 18,000 for the first time since July 2007.

    Last month, Japan's central bank slashed its inflation outlook as plunging oil prices dent efforts to end years of deflation.

    But the bank - which holds its next policy meeting this week - held off expanding its massive monetary easing programme and boosted its growth forecasts, saying the economy would expand 2.1 per cent in the year to March 2016, up from an earlier 1.5 percent forecast.

    Japan's heavy post-Fukushima energy bills - as Tokyo switched to expensive fossil fuels following the shutdown of its nuclear reactors after the 2011 accident - had been lifting prices, but oil rates have tumbled by more than half since the summer.

    The BOJ's inflation target is a cornerstone of Tokyo's broader scheme to turn around years of tepid growth by generating price rises and prompting firms to boost their hiring and expansion plans.

    The sales tax rise - Japan's first in 17 years - slammed the brakes on consumer spending, plunging the economy into recession and throwing Prime Minister Shinzo Abe's growth-boosting programme into question.

    Mr Abe's pro-spending policy blitz - which also calls for major reforms to the highly regulated economy - had been bearing fruit since its launch two years ago, as it boosted stock prices and pushed the yen down, a plus for exporters.

    The tax rise from 5 per cent to 8 per cent was introduced to help pay down Japan's enormous national debt, one of the biggest among wealthy nations.

    However, faced with souring economic data, Mr Abe delayed a second hike planned for this year to 2017.

    "Growth was slower than we had expected, but the Japanese economy seems to be heading in the right direction," said Hideo Kumano, chief economist at Dai-ichi Life Research Institute, referring to the latest data.

    He added that wage hikes will be key to sustaining a recovery, a point echoed by Mr Abe's government, which has repeatedly called on Japan Inc to boost workers' pay as a weak yen helped fatten exporters' profits.

    "It's key that record levels of corporate profit translate into higher wages," Economy Minister Akira Amari told reporters in Tokyo.

    "We're hoping for firm pay hikes this year."