Japan economy shrinking
By Yuri Kageyama
Associated Press
TOKYO — Japan sank into its third recession in a decade with its long ailing economy shrinking 0.5 percent in the third quarter, joining a deepening global downturn that has already placed the United States in recession.
With the world's two largest economies in recession, Japan faces a serious dilemma. It can no longer count on exports to the United States, a critical engine for growth. The drop in today's report translates into an annualized contraction of 2.2 percent in the quarter ending in September.
The news worsens Hawai'i's prospects of quickly recovering from its own recession, several economists said yesterday. Travel from Japan, the second-largest source of visitors to Hawai'i, has plunged since Sept. 11.
"The deepening economic gloom in Japan — particularly the eroding consumption picture — will limit the pace of recovery to Hawai'i," said University of Hawai'i economists Byron Gangnes and Carl Bonham in a report titled "More Bad News for Hawai'i Tourism."
Japanese visitor arrivals to Hawai'i probably will remain more than 20 percent below year-earlier levels in the first quarter of next year, and should remain below their 2000 peak for two years, Bonham and Gangnes said.
The report officially landed Japan in recession, generally defined as two consecutive quarters of economic contraction.
For the previous quarter ended in June, the gross domestic product — the value of goods and services produced in a country — shrank 1.2 percent according to revised figures released today. Japan eked out 1.0 percent growth in the quarter ended in March.
Last month, Washington said the United States entered its first recession in a decade. European economies are also in bad shape, and analysts expect Germany to fall into recession later this year.
Economists here have been warning that Japan was in a recession months ago.
"All the factors on the demand side are annihilated," said BNP Paribas chief economist Ryutaro Kono in Tokyo. "The world economy is in a downturn so exports are down. Corporate profits are faltering so investments are down. With the economy slowing, incomes are down so consumption is down."
The last time Japan dropped into recession was in the first half of 1998, according to recent revisions of government data. Japan also went through three straight quarters of contraction in 1993.
The latest figures show falls in private consumption as well as in both exports and imports, although corporate capital investment and public investments rose.
Last month, the government gave up the initial target of 1.7 percent growth for the fiscal year ending in March and acknowledged the economy would probably contract 0.9 percent. To do that, Japan's GDP will have to grow or at least avoid shrinking for the rest of the fiscal year, the government said.
Japanese ministers played down fears about the recession. Finance Minister Masajuro Shiokawa said the figures were "better than expected." Economy Minister Heizo Takenaka called them "within expectations."
Earlier this week, the Cabinet Office acknowledged the economy won't start growing for two or three years until the completion of reforms promised by Prime Minister Junichiro Koizumi to clean up the banks' towering bad debts, privatize chunks of the public sector and encourage venture businesses.
But even Koizumi supporters are worried whether change is coming soon enough.
One problem is that the government has little leeway for action left. Although a second extra budget is in the works, Tokyo must keep spending in check to curtail the ballooning public debt. There is almost no talk of tax cuts. Politicians are instead trying to pass new taxes to replenish government coffers.
The central bank slashed interest rates to zero in March, leaving little option to tweak monetary policy to bailout the economy.
Unlike the United States, Japan is burdened with the additional problem of deflation — a situation in which prices continue to fall, making debts heavier and pushing down spending and incomes.
