Wednesday, April 8, 2009

Japan plans stimulus as export slide hurts

Japan plans to detail on Wednesday a $100 billion plan, around 2 per cent of GDP, to stimulate an economy deep in recession, as a tumbling current account surplus for February showed the toll from the financial crisis on exports.

The current account surplus halved from a year earlier as exports and earnings from overseas investments sank, highlighting the need to boost domestic demand in the world’s second-largest economy.

Lone Star stages Japan Reit rescue - Apr-08”The data show Japan’s economy continues to deteriorate. For the yen, returning to a surplus is a positive, because foreign investors saw last month’s deficit as a reason to sell the yen,” said Toru Umemoto, chief foreign exchange strategist at Barclays Capital Japan.

The Japanese government, struggling with the worst recession since World War Two, is putting the final touches on its fourth economic package in the past year.

The new package will add around $100 billion to spending already planned under previously announced stimulus measures, doubling the total to around 4 per cent of GDP.

Finance Minister Kaoru Yosano has said he hoped to announce details of the package on Wednesday, although the timing could be delayed if ruling party officials call for more spending.

Included will be the creation of a safety net for contract workers, measures to help corporate financing and increased spending on solar power systems, Yosano has said.

Measures to bolster the labour market may be welcome as Japanese manufactures have slashed payrolls in response to a collapse in exports.

The government will also fund an incentive programme aimed at encouraging consumers to buy energy-efficient electronics, the Nikkei business daily said on Wednesday.

Aside from the expected fiscal spending of over 10 trillion yen ($99.5 billion), the government will expand to 37 trillion yen the amount of funds set aside to aid companies reeling from a domestic credit crunch, the Nikkei reported.

”The size of the government’s economic package will be large. But a lot of steps will be safety nets so that alone will be unlikely to galvanise domestic demand,” said Susumu Kato, chief economist at Calyon.

Japan’s current account surplus fell 55.6 per cent in February from a year earlier, data showed on Wednesday, as exports wilted in the face of a financial crisis that is pummeling Japan and its export destinations.

The drop was smaller than the market median forecast for a fall of 57.1 per cent. The surplus of 1.1169 trillion yen compared with a market median forecast for 1.0776 trillion yen and followed a deficit of 172.8 billion yen in January.

The income surplus shrank 34.1 per cent, the biggest fall in nearly three years, as companies earned less from overseas securities and direct investment, the Ministry of Finance data showed.

Exports fell 50.4 per cent in February from a year earlier, more than a 44.9 per cent drop in imports. That led to an 80.4 per cent decline in the trade surplus.

The dollar edged down to 100.55 yen from 100.65 before the data and the euro slipped to 133.30 yen from about 133.60 yen beforehand.

The Japanese economy is expected to shrink 2.5 per cent in the first quarter of this year and 0.4 per cent in the second quarter, according to a Reuters poll.

That would mean five consecutive quarters of contraction, as a crisis spawned by losses on U.S. mortgage derivatives lead to a contraction in global credit and plunged much of the rich world into recession.

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