Japan to suffer bigger economic slump than initially estimated

Japan’s economy will suffer a much bigger contraction than initially expected in the January-March quarter, as an extended state of emergency to contain the coronavirus pandemic hurt corporate and household spending, an official survey found.

A firm majority of analysts said whether or not Tokyo proceeds with the Olympic Games this year would have little impact on the economy either way, as most big construction projects have already been completed and spectator numbers may be limited.

The world’s third-largest economy is expected to have shrunk an annualised 5.0% in the current quarter, the Feb. 1-10 poll of 37 economists showed, double a 2.4% contraction projected last month.

The downgrade is largely due to the government’s decision in January to roll out renewed restrictions to combat a spike in infections in Tokyo and several other prefectures.

“With the state of emergency, weak consumer spending is proving to be a major drag to growth,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“The economy is expected to rebound in the second quarter and grow thereafter, but at a moderate pace as the pandemic remains a risk.”

Analysts expect Japan’s economy to shrink 5.3% in the current fiscal year ending in March before expanding 3.6% the following year.

Core consumer prices, which exclude volatile fresh food prices, will fall 0.5% this fiscal year and grow only 0.2% next fiscal year, according to the poll, unchanged from projections made in the previous month.

More than half of respondents expected the Bank of Japan’s next policy move to be an unwinding of stimulus, though most do not expect this to happen until 2023 or later.

Adding to the uncertainty is the fate of the already delayed Tokyo Olympic Games as the government struggles to roll out vaccines and faces heat for its slow progress in containing the pandemic.

While organisers are preparing to hold the Olympics from July, nearly 80% of the Japanese public are opposed to holding the Summer Games as planned, recent media polls showed.

Asked how much the Olympics, if held, would push up growth in the next fiscal year beginning in April, 26 economists - or 68% of the total polled - said there would be little boost.

Around 69% said there would be little impact on the economy if the Olympics were canceled. “Most Olympics-related business investment has already been done,” said Tetsuya Inoue, chief researcher at Nomura Research Institute.

The boost to consumption would also be limited even if the Games proceed because Tokyo would likely limit the number of spectators, he added.

Meanwhile, Japan’s stock benchmark snapped a four-session rally on Friday, slipping from a more than 30-year high hit in the previous session, as investors booked profits but gains in Toyota Motor and chip shares capped the losses.

Nikkei share average edged down 0.14% to close at 29,520.07, after hitting a fresh high since August 1990 on Wednesday. The broader Topix inched up 0.04% to end at 1,931.68. Markets were closed on Thursday for a public holiday.

“Investors are taking a pause as they wait for the market price to consolidate after a recent sharp rise,” said Koichi Kurose, chief strategist at Resona Asset Management.

“The gain in the past few weeks was led by optimism for each individual company, not by the growth for overall industries. Investors are waiting to confirm whether the recovery is true.”

Shipping companies led the Nikkei declines, with Nippon Yusen losing 4.7%, Kawasaki Kisen falling 4.45% and Mitsui OSK Lines falling 4.67%.

Toyota Motor jumped 3.48%, after the automaker said on Wednesday after markets closed that it has up to four-month of stockpile of chips and was not immediately expecting a global chip shortage to hit production. It raised its full-year earnings forecast by a bigger-than-expected 54%.

But its rivals’ shares fell, with Honda Motor falling 3.55% and Nissan Motor losing 3.87%.

Chip-related shares gained after Philadelphia semiconductor index hit record highs overnight, as Bloomberg News reported that U.S. President Joe Biden’s administration had pledged aggressive steps to address chip shortage.

Tokyo Electron and Sumco jumped 3.67%, and Advantest gained 3.86%.

Renesas Electronics rose 3.39% after it posted a 45.6 billion yen ($434.99 million) annual net profit, rebounding a 6.3 billion yen loss year ago.

Separately, Japan’s first batch of COVID-19 vaccine arrived on Friday, local media reported, with official approval for the Pfizer Inc shots expected soon as the country races to control a third wave of infections ahead of the Olympic Games.

A government health panel is due to deliberate on the vaccine later on Friday. Kyodo News reported that approval would come on Sunday.