Japan's 4Q GDP revision confirms deep recession

[March 12, 2009]  TOKYO (AP) -- Japan's economy shrank a bit less than first estimated in the fourth quarter, but the revised government data Thursday is hardly good news, serving only to underscore the increasingly grim picture for the world's second-largest economy.

Export demand has collapsed, corporate profits are swerving into losses, and job losses are accelerating nationwide amid Japan's steepest slump since the end of World War II.

Analysts say the current downturn -- and the response of Japanese companies to it -- have combined into a new kind of recession, that's swifter and deeper than ever before.

"The Japanese economy was simply collapsing and nose-diving toward the end of last year," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.

Gross domestic product, or the total value of the nation's goods and services, fell at a 12.1 percent annual rate in the October-December quarter, slightly better than the Cabinet Office's preliminary reading of a 12.7 percent contraction.

The contraction is the severest for Japan since the oil shock of 1974 and is double the pace of the decline in the U.S.

On a quarterly basis, GDP dropped 3.2 percent, improved from an initial reading of a 3.3 percent decline due in part to an upward revision in inventories, the government said.

Japan's economy has shrunk for three straight quarters and is almost certainly headed for a fourth quarter of contraction. Like its Asian neighbors, the export-reliant country has been pummeled by the U.S. financial crisis, which morphed into plunging global demand for its cars and gadgets.

The country's exports plummeted a record 13.8 percent in the fourth quarter from the third quarter, the government said. Capital expenditure -- business investment in factories and equipment -- fell 5.4 percent from the previous quarter, while government investment grew 0.1 percent.

Iconic exporters including Toyota Motor Corp. and Sony Corp. -- both of which are forecasting annual losses -- have reduced shifts, suspended factory lines and announced thousands of job cuts over the past few months. Industrial production in Japan tumbled a record 10 percent in January.

Economists say they've never seen Japanese companies move so quickly to cut staff, facilitated by their greater reliance on temporary contract workers who can be eliminated more easily than full-time employees.

"In past recessions, we typically ended up with excess employment, which resulted in excess production, which resulted in inventory," said Morita of Barclays Capital. "Households have a big hardship under the current recession, but with them as the sacrifice of the economy, the adjustment has been much quicker than before."

The unemployment rate eased a tad to 4.1 percent in January, but the figure doesn't account for workers who have simply dropped out of the labor market altogether. So-called discouraged workers, who have stopped actively looking for a job, are counted in Japanese labor data as part of the "non-working population" instead of the unemployed.

A recent report by the Ministry of Health, Labor and Welfare estimated that nearly 158,000 "non-regular" employees in Japan's manufacturing sector will have lost their jobs between October and March.

For all of 2008, the economy shrank a revised 0.6 percent -- the first decline in nine years, according to the Cabinet Office.

Many forecasters also expect another year of contraction in 2009. Estimates of the severity of the slump this year range widely with the International Monetary Fund forecasting a 2.6 percent contraction and JPMorgan tipping GDP to shrink 7.7 percent.

To revive the economy, Japan's parliament passed a contentious 4.8 trillion yen ($52.2 billion) stimulus plan in January that includes a cash payout that amounts to 12,000 yen ($133) per Japanese taxpayer. Prime Minister Taro Aso -- who faces dismal approval ratings -- has championed the idea, saying it will stimulate sagging consumer spending.

Officials may be considering additional measures to shore up the economy in the months ahead.

Already, Japan's central bank, which lowered its key interest rate to 0.1 percent in December, has introduced various steps to try to thaw a corporate credit crunch, including buying commercial paper, corporate bonds, and stocks from financial institutions.

But Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, predicts this quarter will be even worse. He forecasts GDP to plunge an annualized 15 percent in the January-March period, though he expects Japan's economy to begin climbing again by the end of the year.

"We believe that efforts of governments and central banks all over the world -- which are still in pipeline -- will work eventually, at least in some extent, and Japan's economy can benefit from them," he said in a report.

"Nonetheless, expected severe business retrenchment in inventories, capital, and labor costs likely will weigh on growth significantly for a considerable time at large scale."

In stock trading, the benchmark Nikkei 225 index was down 2 percent at 7,230.36. The dollar was trading at 96.21 yen, down from 97.31 late Wednesday.

[Associated Press; By TOMOKO A. HOSAKA]

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