Japanese economy gets more bad news
Bloomberg News
TOKYO — Another day, another batch of bad economic news for Japan.
Household spending fell in July and consumer prices extended a three-year slide this month, pushing the world's second-biggest economy ever closer to recession.
The reports cap a week in which unemployment rose to a record high, about 20,000 job cuts were announced, factory production fell for a fifth month and the Nikkei stock average tumbled 1,000 points to a 17-year low. Making it harder for the government to boost growth, officials said tax income may fall short of target this year, and the cost of servicing the nation's $5.5 trillion debt is rising.
"I see no single ingredient that's telling us something good about the economy," said Eishi Yokoyama, of Chiyoda Life Capital Management.
The economy's slide may force Prime Minister Junichiro Koizumi to back down from plans to reduce spending as Japan's 11-year slump deepens. The Bank of Japan, which has already pared interest rates to zero and expanded the supply of money, may come under pressure to ease policy further and set an inflation target.
Spending by households headed by a worker who earns a company or government salary fell 0.4 percent in July from a year ago, the government said. In another sign of the long slump in spending, consumer prices, excluding fresh food, fell 1.2 percent this from a year ago.
The Nikkei extended its decline, falling 255 points, or 2.3 percent, to 10,684.16. On Wednesday, it fell below the 11,000 point mark for the first time since October 1984.
Japan has been battered by bad news all week.
On Monday, Toshiba Corp., the second-largest chipmaker, said it will cut 17,000 jobs in Japan.
Tuesday the government said a record 5 percent of the work force was unemployed. Yesterday, a report showed production fell a greater than expected 2.8 percent in July, the biggest drop since January and the fifth monthly decline in a row. Oki Electric Industry Co., which makes microchips for mobile phones, said it will cut 2,200 jobs.
The second-quarter gross domestic product report, out Sept. 7, will show the economy shrank 0.9 percent in the three months ended June 30, after expanding just 0.1 percent in the first quarter, the latest Bloomberg News survey indicates. The economy will probably shrink again this quarter, meeting the standard definition of a recession.
Consumer prices have been falling since September 1998, and signs deflation is worsening may increase calls for Koizumi to spend more to boost demand.
Koizumi's Liberal Democratic Party is expected to clear an extra 2 trillion yen in spending for the current fiscal year to stimulate an economy that may have shrank 0.9 percent in the second quarter after expanding 0.1 percent in the first three months of the year.
Spending by salaried workers rose 2.7 percent last month from June, seasonally adjusted, as warmer weather encouraged people to shop more, a separate report said. Worker bonuses fell 5.3 percent in July from a year ago, and wages fell 2.6 percent, according to the report.
"Warm weather increased spending only temporarily," said Takeshi Minami, an economist at UFJ Capital Markets Securities Co. Ltd. "With disappointing bonuses the declining trend will continue."
The propensity-to-spend ratio, which rises when people spend more, rose to 73.1 in July after falling to a 25-year low in the first quarter, today's report showed.
