Growth likely slowed in quarter

High yen, low exports, euro crisis all factors

Bloomberg

The economy probably grew last quarter at only half the pace of the previous three months, a slowdown analysts predict is deepening as Europe’s debt crisis and the yen’s gains erode exports.

Gross domestic product expanded an annualized 2.3 percent in the three months through June, compared with 4.7 percent in the first quarter, according to the median estimate of 24 economists surveyed by Bloomberg News. The Cabinet Office will release the data Monday.

The slump may deepen this quarter, with exporters from Sony Corp. to Canon Inc. cutting profit projections during the past month because of waning growth overseas.

As Prime Minister Yoshihiko Noda prepares to push a sales tax increase bill through the Upper House, pressure may rise on policymakers to consider a supplementary budget and monetary stimulus to shore up demand.

“We need to be alert to the downside risks to the economy, especially in the third quarter” as the global slump spills over to Japan, said Kohei Okazaki, an economist at Nomura Securities Co. “There’s a possibility that monetary and fiscal stimulus will be implemented by the end of the year.”

A separate survey of analysts by Bloomberg showed growth will further cool to just 1 percent in the current quarter.

The Bank of Japan refrained from easing policy at a Policy Board meeting Thursday. Central banks around the world have moved to boost their economies as the eurozone’s sovereign debt crisis worsens. The Philippines unexpectedly cut interest rates a third time this year to a record low on July 26, while the U.S. Federal Reserve said Aug. 1 that it will pump in fresh stimulus if necessary.

Last week, Sony cut its profit forecast after gains in the yen eroded overseas earnings and sales of consumer electronics weakened. Canon, the world’s largest camera maker, also cut its full-year profit estimate because of the yen’s strength and expectations for weaker growth in the U.S., Europe and China. Sony generates about 70 percent of its sales revenue outside Japan, and Canon some 80 percent.

Adding to manufacturers’ woes is the yen’s 6.4 percent advance against the dollar since mid-March, biting into their bottom line. Exports slid for the first time in four months in June, falling 2.3 percent. The yen was trading at around 78 the dollar Friday.

A report Thursday showed that machinery orders, the key indicator of future capital spending, missed analysts’ forecasts, rising just 5.6 percent after falling in May.

“It’s unavoidable that Japan’s recovery will lose steam toward the end of the year,” said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management in Tokyo. “The uncertainties over the global economy are increasing and there’s a chance for the yen to strengthen further,” supporting the case for further monetary easing, he said.

Net exports, or shipments less imports, were probably unchanged in the second quarter, failing to contribute to the nation’s 0.6 percent quarter-on-quarter expansion, analysts said in a Bloomberg News survey. Overseas demand added 0.1 percentage point to growth in the first three months of the year, according to a government report.

The International Monetary Fund last month lowered its 2013 global growth forecasts on Europe’s fiscal crisis and slower expansion in emerging markets. Even so, Japan’s economy probably grew at the fastest rate among its Group of Seven peers in the April to June quarter as rebuilding from the March 2011 calamities and government incentives for fuel-efficient cars bolstered demand.

Mizuho Securities Co. expects the vehicle subsidy program to expire this month, which may increase the nation’s reliance on overseas demand for growth. Noda said in the Diet on July 9 that, if needed, he would respond with measures including an extra budget to help the economy.