GDP drops at a 3.7% annualized rate due to March 11 disaster
By Lisa Twaronite and Michael Kitchen, MarketWatch
An earlier version of this report misstated the level of the U.S. dollar-Japanese yen currency pair after the data release. The report has been corrected.
TOKYO (MarketWatch) — Japan’s economy shrank by almost double the margin economists had expected in the first three months of 2011, as the March disaster pushed the country back into recession.
Gross domestic product contracted by 0.9% during the January-March quarter, marking a 3.7% annualized drop, the Cabinet Office reported Thursday.
The result showed a far greater drop than a median forecast for a 0.5% quarter-on-quarter contraction in separate surveys of economists from Reuters and Dow Jones Newswires.
The worse-than-expected data came after Prime Minister Naoto Kan said Monday that the second extra budget for this fiscal year aimed at disaster reconstruction might not be ready until August.
“Today’s data could intensify pressure on the Kan government to bring forward the second stimulus package to accelerate reconstruction efforts,” said Prakash Sakpal, an economist at ING Financial Markets Research.
A drop in domestic demand took 0.8 of a percentage point off growth in the latest quarter, as business investment fell 0.9% and consumer spending contracted 0.6%.
The GDP reading was the first to include the impact of the catastrophic earthquake and tsunami on March 11, which also triggered a still-ongoing nuclear crisis at the Fukushima Daiichi nuclear power plant.
The latest figures marked the second consecutive quarter of contraction, which is the technical definition of a recession. GDP contracted a revised annualized 3.0% in the October-December period.
Before the quake, economists had seen Japan returning to growth in the quarter. A survey of 43 economists forecast an annualized growth of 1.73%, according to Dow Jones.
“Considering the economy was picking up before the quake, a large part of the latest contraction is due to the effects of the disaster,” Japan’s economic- and fiscal-policy minister Kaoru Yosano told reporters, according to Kyodo News.
“Although many expect (the economy) to contract in the April-June quarter as well, I believe Japanese people will show tenacity to prevent the nation’s economy from tumbling,” Yosano was quoted as saying.
Yosano said he expects GDP to grow close to 1% in the current fiscal year through March 31, 2012, and added that there is no immediate need to put together a second extra budget.
The Japanese yen USDYEN +0.2817% fell following the announcement, with the U.S. dollar trading at ¥81.75, compared to ¥81.60 just ahead of the data release. Read more on dollar and yen in Currencies.
The yen’s early weakness gave Japanese exporter stocks and the overall market a lift when trading opened shortly after the GDP data report, but the gains faded. The Nikkei Stock Average JP:NI225 -0.43% ended down 0.4%.
“Rather than contemplate the depth of the decline due to the earthquake, the market seems to be looking at the strength and speed of the recovery from the disaster as well as the government’s monetary policy and measures to cope with the nuclear issue,” said Takuji Aida, economist at UBS Securities Japan.
“Thus any impact of the weak January-March GDP data on the market should be limited,” Aida said in a note to clients.
