Instant View: Japan’s economy braced for worst postwar slump despite capex gains in first-quarter GDP

Japan’s economy shrank less than initially estimated in the first quarter, revised data showed on Monday, but the broad impact from the coronavirus crisis is still expected to send the country deeper into recession. FILE PHOTO: Japan's economy has been seriously disrupted by the coronavirus outbreak and restrictions imposed to curb its spread, leaving many districts in Tokyo much quieter than usual. REUTERS/Issei Kato/File PhotoA series of April data including exports, factory output and jobs figures suggested Japan is facing its worst postwar slump in the current quarter as the outbreak forced people to stay at home and businesses to close globally. In an interview with Reuters economy minister Yasutoshi Nishimura said Japan should primarily focus on back-stopping struggling businesses, suggesting the central bank should avoid pushing interest rates deeper into negative territory in battling the pandemic. MARKET REACTION: Japanese markets JPY=EBS .N225 hardly budged after the revised data as traders have already priced in a steep economic downturn in the current quarter. Economists are forecasting an annualised GDP contraction of more than 20% in the current quarter. Here’s how analysts have reacted to the revised data: TOM LEARMOUTH, ECONOMIST, CAPITAL ECONOMICS: “The upward revision to Q1 GDP displayed in the revised estimate is cold comfort given that output is plummeting this quarter. We expect GDP to fall by another 9% this quarter. “To be sure, the economy is gradually recovering now that the nationwide state of emergency is over and infections are low and stable. But a full rebound in economic activity appears impossible while the threat of another wave of infections lingers in the background ... “Despite the Ministry of Finance and Bank of Japan providing businesses and workers with significant support – GDP won’t return to pre-virus levels any time soon. Across 2020 as a whole, we think Japan’s economy will shrink by 6.5%.” NAOYA OSHIKUBO, SENIOR ECONOMIST, SUMITOMO MITSUI TRUST ASSET MANAGEMENT: “The capital spending wasn’t too bad compared to expectations but markets were not paying attention to the data. Today’s rise in share prices is due to U.S. jobs data, not Japan’s GDP.” “It is clear that the Japanese economic growth will be hobbled by the epidemic for some time. “ On Nishimura’s comments about stimulus: “They have no choice. Economic stimulus and the measures to contain the virus have two contradicting aims. You can’t have both at the same time.” TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE: “While the nationwide state of emergency has been lifted, Japan’s economy will likely suffer a huge contraction in the current quarter because it will take quite a long time for business to return to pre-COVID levels. “Growth may rebound in July-September driven by private consumption. But capital expenditure could slow by then. We need to be mindful of the risk that economic activity could slump again if Japan is hit by a second wave of infection rises.” AYAKO SERA, MARKET STRATEGIST, SUMITOMO MITSUI TRUST BANK, TOKYO: “If you look at the Japanese stock market, it certainly suggests that additional monetary easing is not necessary. “The BOJ has already done a lot to respond to the immediate crisis. When it comes to price stability, this is something the BOJ will likely have to re-examine once the current crisis is finally over. “I have some doubts whether the second supplementary budget is really necessary, but it is likely to pass, and this is already reflected in stocks and the yen.” YOSHIKI SHINKE, CHIEF ECONOMIST, DAI-ICHI LIFE RESEARCH INSTITUTE, TOKYO: “There was no surprise in the result of the revised GDP. Many have pointed out that the statistics on corporate financial results had low response rate due to the coronavirus...If it’s the case that companies did not respond simply because they were working remotely, then that’s fine, but maybe they didn’t respond because they were deeply affected by the pandemic... Therefore, there is enough of a possibility of downward revision in the future.”

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