Japan economy to stagnate, then resume recovery: Reuters poll

By Kaori Kaneko

TOKYO (BestGrowthStock) – Japan’s economy will stop growing in the fourth quarter as the benefits of government stimulus packages wane, but will return to moderate recovery next year underpinned by demand from Asia, a Reuters poll showed.

The survey found a 30 percent chance of a double-dip recession, although some economists warned that the economy could contract in the final quarter of this year, with a rising yen further hurting Japan’s exports.

Japan will stay under deflationary pressure until the end of 2011 and the Bank of Japan is likely to keep interest rates virtually at zero at least until the end of 2011, the Reuters poll of nearly 50 economists showed.

The yen hit a fresh 15 year high against the dollar on Thursday on growing expectations for more monetary easing in the United States.

Japanese Finance Minister Yoshihiko Noda has said that Japan will continue to take decisive action on excessive currency moves if necessary, including intervention, as it threatens to derail Japan’s export-reliant recovery.

Japan conducted yen-selling intervention against the dollar on September 15 for the first time in more than six years but gains in the greenback were temporary.

The poll forecasts Japan’s economy will grow 0.5 percent in the third quarter but it is seen stagnating in the final quarter of this year.

“A momentary economic contraction in the fourth quarter cannot be ruled out as consumer spending is likely to plunge due to the effects of yen appreciation and the termination of subsidies for fuel-efficient cars,” said Ryutaro Kono, chief economist at BNP Paribas.

“But with recent indicators showing the Chinese economy is picking up again after a momentary slowdown, Japan’s export growth especially to Asia should prevent Japan from succumbing to a double-dip recession.”

The Bank of Japan earlier this month cut its interest rate target to a range between zero and 0.1 percent, from 0.1 percent, and it pledged to buy 5 trillion yen ($61 billion) worth of assets.

“The BOJ may implement easing steps such as expanding its asset buying scheme, depending on how the Federal Reserve moves on policy because expectations have grown for monetary easing from the Fed at its next meeting,” said Yasuo Yamamoto, senior economist at Mizuho Research Institute.

The poll showed Japanese core consumer prices (CPI) are expected to drop 1.0 percent in the third quarter and 0.7 percent in the fourth quarter. Consumer prices fell 1.0 percent in August on a year earlier, the 18th straight month of annual declines.

(Polling by Bangalore Polling Unit)

Japan economy to stagnate, then resume recovery: Reuters poll