Amid fears of coronavirus impact, Japanese economy sinks

Andrew Cummings
February 18, 2020

Japan's economy shrank in the October-December period for the first time in five quarters, as the sales tax hike and natural disasters pummeled personal consumption, according to preliminary figures released on February 17.

"If this epidemic is not contained by the time of the Tokyo Olympic Games, the damage to the economy will be huge", he said.

Annualised gross domestic product (GDP) fell by a much steeper than expected 6.3% in October-December.

The government hiked a consumption tax from 8 percent to 10 percent in October. The amount of decline was the worst in about five years.

While exports declined by 0.1 percent largely from poor auto sales in the US and European Union markets, imports were down further, to minus 2.6 percent, underlining weak domestic demand.

By comparison, America's analogous measure of GDP was a positive 2.1 percent, as the record-long expansion continues with few apparent hiccups into its 11th year.

Worries about the spread of the coronavirus and its hit to the global economy kept Japanese manufacturers' mood gloomy in February, a Reuters poll found, even as firms shook off previous worries about the impact of the Sino-U.S. trade war.

The flu-like virus has killed more than 1,700 people in China, and it has already taken a toll on China's economy - Japan's largest trading partner - hampering supply chains for vehicle manufacturers to smartphone makers and causing the number of Chinese shoppers to plunge in Japan.

In his interview with the daily, Kuroda said the outbreak was the "biggest uncertainty" for the domestic economy.

Japanese Economy Minister Yasutoshi Nishimura said on Monday the government was ready to take all necessary steps flexibly with an eye on the impact of the coronavirus outbreak on the economy and tourism.

But the figure for the last quarter of 2019 was worse than the annualized rate of minus 5.5 percent posted in the January-March period of 2011, when the Great East Japan Earthquake, tsunami and Fukushima nuclear disaster hit northeastern Japan.

Investors are now watching to see whether the economy will rebound after the coronavirus forced China to shut down factories and led to a big drop in Chinese tourists visiting Japan.

Still, many analysts doubt whether the government and the central bank have effective means to fight another recession given their dwindling policy ammunition.

The figures laid bare the vulnerability of domestic consumption to sales-tax hikes, said Credit Suisse Group economist Takashi Shiono. "Additional easing may do more harm than good to the economy".

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