TOKYO (MNI) – Japanese Economic and Fiscal Policy Minister Kaoru
Yosano said on Thursday he doesn’t believe Japan’s business cycle has
shifted to contraction from expansion even though the economy declined
for the second straight quarter in January-March.

“The Japanese economy will remain weak for now,” he told a news
conference after the government reported preliminary Q1 GDP data showed
a larger-than-expected contraction in Q1 and a sharp downward revision
to Q4 data.

But he quickly added that the economy is “fully resilient” because
the current downturn has been caused largely by supply chain breakdowns
after the March 11 disaster, not a sudden plunge in global demand for
Japanese cars and electronics as seen in 2008-2009.

Efforts are being made to restore parts supplies for auto and
electronic production both domestically and overseas, he said.

“We must not be surprised, even if the GDP fell for a third
straight quarter, as such a decline can be seen as only temporary,” said
Yosano.

Many economists expect the April-June GDP to continue falling after
contracting 0.9% q/q in January-March and 0.8% in October-December of
2010.

In the U.S. and other major economies, a second straight quarterly
drop in GDP means a recession.

The current business expansion period began in April 2009 after
Japan’s economy suffered during the global financial market gyrations
and recession. The previous expansion from February 2002 to October
2007 was Japan’s longest on record.

Yosano said the current GDP decline is “completely different from
that seen after the collapse of Lehman Brothers” in September 2008,
noting that demand, particularly for exports, evaporated suddenly back
then while supply restrictions are hampering growth now.

Restoration of disrupted supply chains has been progressing,
consumers’ self-restraint has been easing, and the first supplementary
budget for fiscal 2011 will create demand for reconstruction of the
quake-hit area, he said.

Yosano said he expects GDP for this fiscal to grow “nearly 1%,”
although he said he is not sure whether the government’s forecast for a
1.5% growth will be met.

Q1 GDP came in weaker than expected, he admitted, adding that the
contraction was mainly caused by the effects of the March 11 earthquake
and tsunami.

Output in the quake-hit areas in northeastern Japan account for
around 4% of Japan’s total GDP, and one-third of that was wrecked by the
disaster, he estimated.

To cope with the GDP fall, Yosano said the government will enact
policies to strengthen the upward momentum of the Japanese economy.
However, “additional fiscal measures are not needed at this point.”

As for monetary policy, he said: “The Bank of Japan has already
taken the maximum possible policy actions, so I have no request.”

Among downside risks for the Japanese economic outlook, Yosano
pointed to electric power supply shortages in the summer, the nuclear
radiation stigma on Japanese goods overseas, the effects of tensions in
the Middle East on oil prices and a possible shift of production
capacity to overseas locations by Japanese firms.

tokyo@marketnews.com
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