Japan in recession, to pump in funds
JAPAN has signalled that it will pull together a stimulus programme to shore up the world's third-largest economy after it unexpectedly slumped into a fourth recession since 2008.
The grim news, combined with British Prime Minister David Cameron's warning of fresh global economic turmoil, sent stocks sliding yesterday.
European and most Asian markets fell and Tokyo tanked by almost 3 per cent. This, after official data showed Japan's gross domestic product (GDP) shrank 0.4 per cent in the third quarter, compared with the second when the economy contracted by 1.9 per cent - meeting the technical definition of a recession as two successive quarters of shrinking economic output.
The figure makes it almost inevitable that Japan's Prime Minister Shinzo Abe will delay a sales tax rise due next October and call snap elections for next month - two years before he has to go to the polls. The economy expanded in the first three months of the year, but an April 1 increase in sales tax - aimed at repaying a huge national debt - hammered consumer spending and slammed the brakes on a nascent recovery.
Economy Minister Akira Amari told reporters yesterday that some economic stimulus was likely but it would be hard to craft an exceptionally big package because of the need for fiscal discipline.
Etsuro Honda, an adviser to Mr Abe, termed the economic slide "shocking", and urged the government to take steps to support the economy.
"This is absolutely not a situation in which we should be debating an increase in the consumption tax," Mr Honda, one of the architects of Mr Abe's reflationary policies, told Reuters.
He added that a 3 trillion yen (S$33.5 billion) programme was appropriate and should go to childcare and other measures to directly help households.
"The present situation is like a boxer who is hit and trying to rise," said Koichi Hamada, a retired Yale University professor who has advised Mr Abe on economics. "The reason why Abenomics doesn't look as sound as before is that we added opposite power," he said, referring to the fiscal tightening.
Some analysts were lamenting yesterday's double whammy of bad news.
"Japan is officially in recession and comments from David Cameron have done little to calm fears as he talked up the prospect of another global financial crisis, with the eurozone being seen as sitting very much at the heart of the problem," said analyst Tony Cross at traders Trustnet Direct.
"Six years on from the financial crash that brought the world to its knees, red warning lights are once again flashing on the dashboard of the global economy," Mr Cameron wrote in a newspaper article published after the Group of 20 summit.
He added there was a "dangerous backdrop of instability and uncertainty" which was also fuelled by Middle East unrest, Ebola, Ukraine tensions and stalled global trade talks.
However, some analysts played down the speculation of a new crisis in the world economy.
"The surprise fall in Japanese third-quarter GDP spooked the markets, whilst the euro area economy is clearly struggling, but talk of another global financial crisis is overdone in our view," said RIA Capital Markets macro strategist Nick Stamenkovic.
"The dollar remains the main beneficiary as the US remains an oasis of stability in the global economy, keeping the Federal Reserve on course for higher (interest) rates by middle of next year."
BLOOMBERG, AFP, REUTERS