BoJ chief sees Japan economy shrinking in H1

Monday, 25 April 2011 00:00 - - {{hitsCtrl.values.hits}}

TOKYO (AFP) - Bank of Japan governor Masaaki Shirakawa said the economy will likely contract in the first half mainly due to stalled production after the quake-tsunami, the Wall Street Journal reported Saturday.

“We are now expecting production and GDP will decline in the first quarter and the second quarter,” Shirakawa said in an interview with the paper on Friday.

He said stalled production was the “heart of the problem” facing the Japanese economy in the aftermath of the monster March 11 quake and tsunami disaster which has left 26,455 dead or missing.

The disasters damaged production facilities and atomic power plants in the northeast, triggering the world’s worst nuclear crisis since Chernobyl and resulting in electricity shortages and disruptions to the supply chain.

Shirakawa told the paper the disruptions to production could last until at least August due to the power shortages caused by the nuclear crisis.

The BoJ governor’s comments are in tune with analysts who have said they expect the disaster will force the world’s third-largest economy to contract in the first half.

Many see Japan sliding into a temporary recession after the quake and tsunami devastated infrastructure and manufacturing facilities and plunged the nation into its worst crisis since World War II.

The central bank will hold a policy meeting on Thursday and release its semi-annual report on the economic outlook.

On April 7 the bank left its key rate unchanged at between zero and 0.1 percent and downgraded its view of the economy.

Japan’s biggest companies are still trying to gauge the full impact of the catastrophe which forced the likes of Toyota, Honda and Sony to shutter plants.

The International Monetary Fund earlier this month cut its 2011 growth forecast for Japan to 1.4 percent, compared with 1.6 percent before the quake.

The Organisation for Economic Cooperation and Development on Thursday slashed its forecast to 0.8 percent growth, from its previous expectations of a 1.7 percent expansion.

However, massive government and business investment in reconstruction will drive a sharp rebound in 2012, with the economy seen expanding 2.3 percent, the OECD said, revising up its previous estimate of 1.3 percent given in November.

Japan estimates the cost of rebuilding from the quake and tsunami could be as much as 25 trillion yen ($303 billion).

The cabinet on Friday approved a four trillion ($49 billion) extra budget to help fund reconstruction.

The government said it would not issue fresh bonds to finance it but planned to divert some funds from welfare programmes.

Prime Minister Naoto Kan, under pressure to reduce the nation’s huge debt at around 200 percent of GDP, said however a “sizeable” second extra budget would be necessary which would be financed by a government bond issue.