Figures bring hope of Japan recovery

Japan’s economy shrank much less than expected in the second quarter as companies made strides in restoring output after the devastating earthquake in March, but a soaring yen and slowing global growth cloud the prospects for a sustained recovery.
By The Newsroom
Published 16th Aug 2011, 10:11 BST

Analysts expect the world’s third largest economy to rebound in July-September, probably expanding at the fastest rate among major industrialised nations as exports and factory output return to pre-disaster levels. But growing risks to this scenario could strain a depleted arsenal of policy tools.

Gross domestic product fell 0.3 per cent in the second quarter, less than a median forecast for a 0.7 per cent contraction and a 0.9 per cent decline in January-March.

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The better-than-expected reading helped push up the Nikkei benchmark N225 by about 1 per cent, which has also tracked gains in global markets last week supported by a short-selling ban on financial stocks in Europe.

However, worries that Europe’s sovereign debt woes could escalate into another global crisis could rob Japan of much-needed export demand, increasing the chance of further yen-selling intervention and monetary easing to secure economic recovery.

Government officials highlighted risks posed by the strong yen and global slowdown to the export-reliant economy, saying they stood ready to act against rapid yen rises while urging the central bank to keep supporting the economy.

“The economy will show a V-shaped rebound in July-September as supply chains are on the mend to help boost exports,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

Related topics:JapanEurope