Japan’s Q2 GDP contracts most on record due to pandemic woes

Japan’s economy contracted at the sharpest pace on record in the second quarter as the coronavirus crisis crushed business and consumer spending, a Reuters’ poll showed, and a recent surge in infections is clouding the outlook for recovery.

Such a grim reading would cement views that the world’s third-largest economy has fallen into a deeper recession, and reinforce expectations that the government will need to compile another stimulus package on top of $2.2 trillion announced so far.

Gross domestic product (GDP) is expected to have shrunk by an annualised 27.2% in April-June, the third straight quarterly contraction and the biggest decline on record since comparable data became available in 1980, the poll of 18 economists found.

On a quarter-on-quarter basis, GDP likely fell 7.6%, the poll showed on Friday.

“Both domestic and foreign demand sharply declined due to the expansion of the coronavirus infection,” said Shinichiro Kobayashi, senior economist at Mitsubishi UFJ Research and Consulting.

“The data will likely reconfirm the depth of economic impact from the coronavirus outbreak.”

Private consumption, which accounts for more than half of Japan’s economy, was projected to have dropped 7.1% for the quarter, the poll showed, also a third straight quarterly fall.

Capital spending was expected to have declined 4.1% in the second quarter, the poll found, the first fall in two quarters.

External demand - or exports minus imports - likely subtracted 3.2 percentage point from GDP, as the pandemic dampened global demand.

The Cabinet Office will announce GDP on August 17. The Bank of Japan’s (BOJ) corporate goods price index (CGPI), which measures the prices companies charge each other for goods and services, likely slipped 1.1% in July from a year earlier, slowing down from a 1.6% decline in June, the poll found.

The central bank will publish CGPI on August 13.

Japan’s economic activity has gradually resumed in recent months after the government lifted a coronavirus-related state of emergency at the end of May. But the virus has made a worrying resurgence, particularly in Tokyo.

Meanwhile, Japanese shares ended lower on Friday as Sino-US tensions heightened following a US ban on transactions with China’s tech firms, while a raft of lacklustre domestic earnings and caution ahead of key US jobs data also weighed.

The benchmark Nikkei share average fell 0.39% to 22,329.94.

Tokyo shares tracked China and Hong Kong stocks lower in the afternoon, as the Trump administration unveiled bans on US transactions with ByteDance’s TikTok and Tencent-owned WeChat, stoking fears that a “silicon curtain” is emerging between the two superpowers.

Japan stock markets will be closed on Monday for a public holiday.

US non-farm payroll due later in the day is widely expected to show that jobs creation in the United States slowed in July from the prior month, indicating a resurgence in COVID-19 infections is undermining the world’s largest economy.

SUMCO Corporatiom, which produces equipment for making semiconductors, slid 8.97% after reporting a 26.8% decline in its January-September net profit.

SUMCO’s fall pulled down peer Advantest Corporation by 4.77%, while Screen Holdings lost 3.05%.

Shiseido slumped 8.64% after the cosmetics firm forecast a net loss and lower dividend for the full year.

Some analysts argue that the decline in corporate profit has bottomed out and earnings will gradually recover, as game and electronic commerce industries saw a surge in demand from people staying indoors during the lockdown.

Nintendo Co Ltd rose 2.58% after posting a five-fold jump in quarterly profit.

Square Enix Holdings spiked 12.4% and marked a record high after the gaming company posted a 241.4% increase in its operating profit for the three-month period ended June 2020.

Mercari also jumped 10.94% to its highest level since June 2018, as the flea market app operator logged a better-than-expected operating loss for the year ended June 30. The broader Topix lost 0.2% to 1,546.74.

Japanese government bond prices were largely steady on Friday as investors stayed on the sidelines ahead of US jobs data and a three-day weekend in Japan.

Benchmark 10-year JGB futures ticked up 0.04 point to 152.28, with a trading volume of 10,055 lots, while the 10-year JGB yield edged down half a basis point to 0.010%.

Reuters