Japan GDP slumps, leaders look for alternatives
Japan fell deeper into recession with its worst quarterly contraction in 35 years, data showed on Monday, with its reliance on exports and soft domestic demand dragging down the world’s second-largest economy.
Japan’s grim data came after financial leaders from the Group of Seven (G7) foreshadowed unorthodox solutions to the global financial crisis as scope for more traditional tools diminished amid near-zero interest rates.
Even though Japan has been relatively insulated from the collapse of the U.S. credit and housing markets, which precipitated the global crisis, Japanese Economics Minister Kaoru Yosano said his country faced its worst economic crisis since World War Two.
With demand for its cars and electronics waning, an unprecedented slump in exports saw its economy shrink by 3.3 percent, marking three straight quarters of contraction and its worst result since the first oil crisis in 1974.
Japan has suffered a sharper contraction than other major economies because of its heavy dependence on exports combined with persistently soft domestic consumption.
“The data showed a severe picture of the Japanese economy and highlighted the weakness in exports,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Yosano said his government must pursue all options to keep the economy afloat, but warned about large-scale spending, saying Japan could not become “addicted to painkillers.”
Worried by sliding U.S. Treasuries and reports the heavily indebted Japanese government might be planning more stimulus spending, March 10-year government bond futures slid a third of a point no teletrack payday loan.
In Rome, G7 financial leaders, fearing a 1930s-style resurgence in protectionism, pledged at the weekend to do all they could to fight recession, but major world economies still faced the biggest downturn in decades.
UNCONVENTIONAL TOOLS
But, with U.S. and Japanese interest rates already close to zero, G7 leaders had to look beyond conventional economic tools once they can’t cut rates any further, with a possible return to Japan’s experiment with quantitative easing earlier this decade.
European Central Bank President Jean-Claude Trichet foreshadowed “non-standard measures” to tackle the crisis, but said the ECB had not drawn any conclusions after discussions with other central banks.
Trichet gave no concrete plans, but it was hoped he would provide more clues with an address at 9:45 a.m. EST on Monday.
“I have said that I did not exclude additional non-standard action, but no decision has been taken yet on top of the non-standard action we have already decided to do and we will see,” Trichet said in Rome at the weekend.
U.S. and Japanese rates are now virtually zero, with the Bank of England and the ECB heading that way, leaving policy makers searching for alternatives to traditional tools like rate cuts and stimulus packages to boost spending.
Filed under: technology by TheDoor