Aug. 8 (Bloomberg) -- Japan's economy probably contracted last quarter, bringing the country to the brink of its first recession in six years, as exports fell and consumers spent less.
Gross domestic product shrank an annualized 2.3 percent in the three months ended June 30, according to the median estimate of 25 economists surveyed by Bloomberg News. The Cabinet Office will release the report on Aug. 13 at 8:50 a.m. in Tokyo.
Prime Minister Yasuo Fukuda, who last week replaced his economic ministers in a bid to boost his popularity, is planning relief measures to help companies and consumers cope with record energy costs. Toyota Motor Corp. yesterday reported the biggest drop in earnings in five years as U.S. sales slumped.
``What you're going to see is a long, slow, modestly painful recession,'' said Robert Feldman, head of economic research at Morgan Stanley in Tokyo. ``It's going to fall heavily on both workers and stock holders who are suffering lower returns as profits come down.''
Exports probably fell 2.4 percent last quarter, robbing Japan of the engine that drove growth over the past six years, according to economists surveyed. Shipments abroad increased every quarter except one since the most recent recession in 2001.
The economy probably shrank 0.6 percent from the first quarter, when it grew 1 percent, about twice the average pace of the expansion that began in 2002. Net exports -- the difference between exports and imports -- subtracted 0.1 percentage point from growth, economists said.
Toyota Cuts Forecast
Toyota, Japan's biggest company, yesterday cut its sales forecast for the year ending March 2009 by 3.5 percent to 8.7 million vehicles. Since June, Toyota has fired 800 workers at a Kyushu-based subsidiary, where the company is cutting production of sport-utility vehicles and Lexus sedans bound for the U.S.
``The Toyota story is totally consistent with the macro data,'' said Kiichi Murashima, chief economist at Nikko Citigroup Ltd. in Tokyo. ``Companies have been quick to get rid of workers in response to slowdowns in some sectors.''
The unemployment rate jumped to 4.1 percent in June from 3.8 percent three months earlier. Wage growth is also slowing.
Summer bonuses at the country's biggest companies, which tend to pay more than their smaller counterparts, dropped this year for the first time since 2002, according to a survey by the Keidanren business lobby.
Bank of Japan
Domestic demand, which includes company and consumer spending, probably accounted for 0.5 percentage point of the economy's quarter-on-quarter contraction. The figures for household spending will probably exaggerate the decline from the first quarter, when the leap year gave consumers an extra shopping day in February, economists said.
The government yesterday said the economy is ``weakening'' for the first time since 2001. The worsening economy and the fastest inflation in a decade will compel the Bank of Japan to keep its benchmark interest rate at 0.5 percent for the rest of the year at least, according to economists surveyed last month.
Still, analysts say the current slowdown is unlikely to be as severe as past recessions because the corporate sector is better able to handle higher costs and weakening U.S. demand. Businesses have trimmed excess debt, workers and capacity, Economic and Fiscal Policy Minister Kaoru Yosano said yesterday.
``Most of the measures suggest that things aren't as good as they were 12 months ago, but it's nothing like 2001, 1998, or 1993,'' said Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo.
Capital Investment
Companies plan to increase capital investment by 4.1 percent in the year ending March, according to a survey released this week by the Tokyo-based Development Bank of Japan. While that's slower than last fiscal year's 7.7 percent, it's better than the 10 percent decline recorded during the 2001 recession.
The Bank of Japan's most recent business survey showed that labor demand is close to a 16-year high. The jobs-to-applicants ratio was at 0.91 in June, meaning almost every person who wants a job can get one. During the previous recession seven years ago, there were two applicants competing for every position.
``When you say recession, it triggers images of 1998 or 1993,'' Jerram said. ``You're having a period of sub-par growth, but it's not the sort of downturn we saw three times during the previous 15 years.''
Aug. 8 (Bloomberg) -- Asia's benchmark stock index fell, set for a second weekly decline, as a slump in earnings and an unexpected rise in U.S. jobless claims heightened concern that growth is stalling.
Sanyo Electric Co., the world's largest maker of rechargeable batteries, dropped in Tokyo after operating profit slumped. Mitsubishi UFJ Financial Group Inc. plunged for a third day after Asian corporate bond risk rose and Japanese bank lending slowed for the first time this year. Telecom Corp., New Zealand's biggest telephone company, sank the most in almost six years after net income dropped.
``There aren't many bullish companies left with the economic outlook so murky,'' said Naoteru Teraoka, who helps oversee $21 billion at Chuo Mitsui Asset Management Co. in Tokyo. ``We have yet to hit a real bottom.''
The MSCI Asia Pacific Index declined 0.5 percent to 127.36 as of 12:34 p.m. in Tokyo. Losses were capped by gains for Toyota Motor Corp., the world's second-largest carmaker, and Lenovo Group Ltd., China's biggest personal-computer maker, after better-than-expected earnings.
For the week, the gauge has lost 2.5 percent. Japan's Nikkei 225 Stock Average rose 0.3 percent to 13,149.85. Most benchmark indexes in the region fell.
U.S. Stocks
U.S. stocks fell the most in a week yesterday, with the Standard & Poor's 500 Index losing 1.8 percent. American International Group Inc. plunged the most since listing in 1969 after reporting an unexpected loss, while Wal-Mart Stores Inc., the world's largest retailer, dropped after saying sales are likely to slow. S&P 500 futures for September rose 0.2 percent.
Sanyo tumbled 5.2 percent to 220 yen. The company reported a 24 percent slide in operating profit yesterday due to higher materials costs and falling demand for semiconductors.
Telecom slumped 10 percent to NZ$3.31 in Wellington, the steepest retreat since November 2002. Price competition and declining revenues at its mobile and fixed-line businesses were responsible for a 31 percent decrease in fourth-quarter earnings.
``It's a vicious cycle: stocks fall, people's asset values fall, consumer spending falls and things get tougher as it grinds on,'' said Kim Young Joon, who oversees the equivalent of $2 billion as head of equities at NH-CA Asset Management in Seoul. ``It's hard to hope for earnings to improve much for the rest of the year.''
Mitsubishi UFJ
Mitsubishi UFJ, Japan's No. 1 bank by market value, fell 3.7 percent to 837 yen. Dentsu Inc., the nation's biggest advertising company, dropped 3.5 percent to 216,400 yen, after reporting an 8.7 percent drop in July sales yesterday.
Japan's Cabinet Office said yesterday the economy ``may be in a recession'' due to slower growth in the U.S. The world's second-largest economy contracted 2.3 percent in the April-to- June quarter, according to economists surveyed by Bloomberg. The figures will be released next week.
``The idea that Asian growth will continue in spite of what's going on in the U.S. does not jive with reality,'' Chuo Mitsui Asset Management's Teraoka said.
Mitsui O.S.K. Lines Ltd. led shipping companies lower after Jun Harada, an analyst at UBS AG in Tokyo, lowered his recommendation on Japan's three largest lines, citing dimming prospects for higher rates. Mitsui O.S.K., Japan's second- biggest bulk shipper, plunged 5.9 percent to 1,200 yen.
Baltic Index
The Baltic Dry Index, a measure of coal, iron ore and grain shipping costs, extended its losing streak to a 20th day, the longest string of declines since August 2005, amid concern demand in China is slowing.
Mitsui Engineering & Shipbuilding Co., Japan's second- largest shipyard, retreated 11 percent to 259 yen after lowering its profit forecast, prompting at least three brokerages to downgrade the shares.
Aug. 8 (Bloomberg) -- The euro slumped to a five-month low against the dollar as traders pared bets that the European Central Bank will raise interest rates due to a slowing economy.
The euro also fell to a three-week low versus Japan's currency after ECB President Jean-Claude Trichet said economic growth will be ``particularly weak'' through the third quarter. The dollar headed for its biggest weekly gain against the yen in almost two months as oil dropped 18 percent from a record. The Australian dollar declined for a ninth day, the longest stretch since 1980, as futures show the central bank will cut borrowing costs this year.
``Trichet triggered the euro's decline when he went out of his way to highlight weakness in the economy,'' said Saburo Matsumoto, senior manager of foreign-exchange sales at Sumitomo Trust & Banking Co. in Tokyo. ``A rate increase is off the cards for the time being, and the euro is likely to adjust lower.''
The euro fell to $1.5195, the lowest since March 5, before trading at $1.5216 at 12:37 p.m. in Tokyo, from $1.5325 late yesterday in New York. It's set for a fourth weekly decline, the worst losing streak since May 2007. The euro weakened to 166.92 yen from 167.70 yesterday and 167.55 at the end of last week. It reached 166.55 yen, the lowest since July 17.
The dollar traded at 109.70 yen, from 109.44 late yesterday and up 1.8 percent from the end of last week. The U.S. currency reached a seven-month high of 109.88 yen on Aug. 6.
The euro may fall to $1.50 in the next few weeks, Matsumoto forecast.
Australian Dollar
Australia's dollar dropped to 89.27 U.S. cents, the lowest in almost six months, and last traded at 89.42 from 91.10 cents late in Asia yesterday and 92.91 cents on Aug. 1 in New York. The currency slipped to 98.12 yen from 99.71 yen yesterday. The Reserve Bank of Australia said it may lower borrowing costs, after keeping its benchmark interest rate at a 12-year high of 7.25 percent this week.
Trichet said yesterday he has ``no bias'' or ``pre- commitment'' toward future rate movements after the central bank left the main refinancing rate at 4.25 percent. He told reporters at a press conference in Frankfurt that while inflation remains a threat, risks to economic growth are ``materializing.''
European retail sales dropped by the most in at least 13 years in June, the European Union said on Aug. 5. Consumer confidence slid in July by the most since the Sept. 11, 2001, terrorist attacks, the European Commission said July 30.
``We do not expect a significant recovery in the euro from current levels,'' Ashley Davies, currency strategist in Singapore at UBS AG, the world's second-largest foreign-exchange trader, wrote in a research note today. ``Trichet delivered fairly standard comments, which were interpreted in a dovish fashion.''
Bunds, Rate Bets
Traders pared bets the ECB will raise the main refinancing rate for a second time this year. The three-month Euribor contract for December yielded 4.95 percent yesterday, down from 5.03 percent on Aug. 6.
Two-year German bunds rose yesterday, pushing the yield down 15 basis points to 4.09 percent, a difference in yield with similar-maturity U.S. Treasury notes of 1.66 percentage points compared with 1.92 points a month ago.
The euro may fall to $1.5170 against the dollar should it stay below technical support around $1.5227, said Masashi Hashimoto, a senior currency analyst at Bank of Tokyo-Mitsubishi UFJ Ltd.
The so-called support level of $1.5227 represents its 200- day moving average, Hashimoto said. The next target of $1.5170 represents a 50 percent retracement from the euro's record high of $1.6038 on July 15, based on a series of numbers known as the Fibonacci sequence.
Dollar, Oil
The dollar traded near a seven-month high against the yen as oil prices declined during the past week to trade at $119.80 a barrel, on course for a 4.2 percent loss this week and compared with the record $147.27 set on July 11.
``Oil prices have turned out to be much more supportive of the dollar than I expected,'' said Masanobu Ishikawa, general manager of foreign exchange at Tokyo Forex & Ueda Harlow Ltd., Japan's largest currency broker. ``It does temporarily relieve some concern that the U.S. economy will weaken further. This is a plus for sentiment.''
The pound fell 2.4 percent from a week ago to $1.9287 after the Bank of England yesterday kept borrowing costs unchanged for a fourth month at 5 percent.
Japan's Economy
Any gains in the yen may be limited by speculation a slowing economy will prevent the Bank of Japan from raising interest rates from 0.5 percent, the lowest among industrialized economies.
There is ``a high possibility'' the economy has entered a recession, Shigeru Sugihara, head of business statistics at the Cabinet Office in Tokyo, said on Aug. 6. Gross domestic product shrank an annualized 2.3 percent in the three months ended June 30, according to the median estimate of economists surveyed by Bloomberg. The report is due on Aug. 13.
``Officials confirmed Japan may have entered a recession,'' said Ryohei Muramatsu, manager of Group Treasury Asia in Tokyo at Commerzbank AG, Germany's second-largest bank. ``This is a catalyst for Japan selling, such as Japanese stocks and the yen. With interest rates low, Japanese investors will keep sending money abroad.''
Japan's currency may fall to 109.80 a dollar today, Muramatsu said.
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