STORY HIGHLIGHTSNumbers are much worse than consensus forecasts of a 1.3 per cent declineFactors included Thai floods, a strong yen and subdued overseas demand for exportsOutlook more positive, thanks to reconstruction demand in quake hit regions (Financial Times) — Japan’s economy shrank for the third time in four quarters between October and December, after floods in Thailand damaged production and a strong yen and subdued overseas demand hurt exports.
Gains in Asia were limited after the Japans economy contracted more than forecast in the fourth quarter as exports slid on weakness in global demand and a stronger yen.
Cabinet Office figures on Monday showed that real GDP fell an annualized 2.3 per cent in the fourth quarter, much worse than consensus forecasts of a 1.3 per cent decline.
On a quarter on quarter basis, output fell by 0.6 per cent, dragged down by exports — which fell 3.1 per cent — following a 1.7 per cent rise in the third quarter.
Machinery orders in the three months to December increased by 10 per cent from September, suggesting that industrial production in January and February could recover to a level reached before the disasters last March, according to the Ministry of Economy, Trade and Industry.
Kazakhstan’s economy turned downward in 1998 with a 2.5% decline in GDP growth due to slumping oil prices and the August financial crisis in Russia.
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.
Meanwhile, the Bank of Japan, which concludes a two day policy meeting on Tuesday, will be under pressure to do more to shake off the country’s persistent state of deflation.
Opposition party members last month called for the BoJ to emulate the US Federal Reserve’s decision to set a firm inflation target of 2 per cent.
The BoJ, however, prefers to aim for what it calls “price stability”, whereby the year on year rate of change in the core consumer price index — which includes all items, excluding fresh food — is between zero and 2 per cent, centering around 1 per cent.
Nationwide core CPI fell 0.1 per cent, year on year, in December, the third straight month of decline.
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