Japan’s economy falls sharply as Thai floods and strong yen pull on exports
JAPAN’S economy shrank much more sharply that expected in the final quarter of 2011, official GDP estimates showed yesterday.
The strong yen and Thai floods helped cut exports by 3.1 per cent over the three-month period, leading GDP to contract by 0.6 per cent.
Public fixed capital formation fell by 2.5 per cent, a second consecutive quarterly decline, also hitting output, which declined by 0.9 per cent for the year as a whole.
Analysts expect the grim news to increase pressure on the Bank of Japan to tweak its monetary policy outlook.
“Since the Fed enhanced its policy guidance on 25 January and dragged down the USD by pushing back its policy rate hike expectation toward late 2014, both ruling and opposition politicians have said the Bank should clarify its current monetary policy regime,” said Barclays Capital’s Masafumi Yamamoto.
To weaken the yen, Yamamoto suggested the Bank either increase its asset purchases or publicly seek to out-do the Fed by promising lower interest rates and more QE beyond the Fed’s stated forecast periods.
The Bank of Japan believes more spending on reconstruction should help boost GDP into 2012.
However, economists worry slowing consumer demand – growth fell to 0.1 per cent in the fourth quarter from 0.9 per cent in the third – may dent those hopes of recovery.