Japan in Recession

Dallas, TX 5/19/2011 (PennyPayDay) -- Japan’s economy shrank more than estimated in the first quarter after the March 11 earthquake and tsunami disrupted production and prompted consumers to cut back spending, sending the nation to its third recession in a decade.

Gross domestic product contracted an annualized 3.7 percent in the three months through March, following a revised 3 percent drop in the previous quarter, the Cabinet Office said today in Tokyo. The median forecast of 23 economists surveyed by Bloomberg News was for a 1.9 percent drop.

The March disaster hit an economy already weighed down by years of deflation and subdued consumer spending, and slashed profits at companies including Toyota Motor Corp. as factories were shut. The economy, now the smallest size since 1991 unadjusted for price changes, may shrink further this quarter before rebounding later in 2011 as reconstruction kicks in.

“The contraction in the second quarter will probably be even bigger as consumer spending and exports slump,” said Norio Miyagawa, senior economist at Mizuho Securities Research and Consulting Co. in Tokyo. “The economy will likely return to growth from the third quarter once the supply-chain disruption eases and reconstruction work begins.”

The Nikkei 225 (NKY) Stock Average fell 0.4 percent today on the worse-than-expected GDP data. The Nikkei has lost 8 percent since the quake and tsunami, which left more than 24,000 dead or missing. The yen traded at 81.70 against the dollar at 3:48 p.m. in Tokyo, compared with 81.69 before the report was published.

‘Temporary Phenomenon’

The economic contraction may only be a “temporary phenomenon,” and two straight quarters of shrinkage “doesn’t necessarily mean the economy’s trajectory has changed,” Kaoru Yosano, the economy minister, told reporters today.

Economists typically define a recession as two consecutive quarters of contraction. The Japanese government instead determines recessions by having a committee of academics decide when recoveries and retreats begin and end.

The revised fourth quarter GDP figure showing a 3 percent annualized contraction was more than double the previous estimate, after the government revised data going back to 1980, according to the Cabinet Office.

Capital investment dropped 0.9 percent in the first quarter, the first decline in six quarters, today’s data showed.

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