MercoPress. South Atlantic News Agency

Japan’s economy slows down considerably in second quarter

Prime Minister Naoto Kan and manufacturers concerned with strength of the Yen

Japan’s economy expanded at the slowest pace in three quarters. GDP rose an annualized 0.4% in the three months ended June 30 from a revised 4.4% expansion in the first quarter, the Cabinet Office said in Tokyo.

Profits of exporters from Toyota and Honda car manufacturers are at threat from the Yen’s advance to a 15-year high against the US dollar. Moderating growth may pressure the Bank of Japan to ease monetary policy to spur the expansion and stamp out deflation as the nation’s public debt, the world’s largest, constrains the government’s ability to do so.

Prime Minister Naoto Kan said he is concerned about the rising Yen, Kyodo News reported on August 14. Japan’s currency may climb to a record, Eisuke Sakakibara, formerly Japan’s top currency official, said on the Fuji television network.

The strengthening currency prompted Finance Minister Yoshihiko Noda to say last week “excessive” moves can hurt the economy; remarks that helped the currency pare its gains. He pledged to work with Bank of Japan Governor Masaaki Shirakawa, who said in a statement the bank is closely watching “substantial” movements in foreign-exchange and stock markets.

“If the Japanese economy is forced to create a production structure based on 85 Yen to the dollar, that would be disastrous,” as the nation wouldn’t earn enough from exports to pay for commodities from overseas, Honda Motor Co, Chief Financial Officer Yoichi Hojo said.

The BOJ introduced a fixed-rate lending facility last December after the Yen surged and stocks plunged. The program was doubled to 20 trillion Yen in March. The central bank has kept the benchmark interest rate at 0.1% since lowering it in December 2008.

The government has been offering shoppers incentives to buy energy-efficient cars and electronics to support the economy. The measures have helped spur consumer spending, which accounts for more than half of the economy and some are scheduled to expire this year.

The slowdown in the second quarter contrasts with reports from Japan’s biggest companies that signalled a better earnings outlook, even as the Yen surges. Toyota, Honda, Sony and Panasonic Corp. were among firms that raised profit forecasts over the past month.

Slower growth may undermine Kan’s efforts to reduce the world’s largest public debt. Kan’s focus on fiscal discipline has irked members of his ruling Democratic Party of Japan, which lost an upper-house election in July after he said he will consider doubling the country’s sales tax to 10%.

Kan has pledged to cap bond sales and spending for the next three years to prevent the country’s finances from collapsing.