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Japan to avoid recession, but Q2 growth forecasts cut sharply: Reuters poll

TOKYO: Japan's economy likely grew and avoided slipping into recession this quarter but an extension of emergency measures to stem a rise in coronavirus infections has dented the growth outlook, a Reuters poll showed.

Just over a month before Tokyo is set to host the Olympic Games, the world's third-largest economy was seen expanding an annualised 0.5per cent this quarter, less than a third of the 1.7per cent economists projected last month, according to the June 2-14 poll of 36 economists.

Japan's gross domestic product shrank by an annualised 3.9per cent in January-March, the first contraction in three quarters.

About 85per cent of analysts polled expected the next policy move by the Bank of Japan, which is set to meet this week, to be an unwinding of stimulus, but 90per cent don't expect that to happen until 2023 or later and the remaining 10per cent not until next year.

About two-thirds of economists, 23 of 36, expected the economy to grow this quarter, while the other 13 anticipated it would shrink, which would push it into recession - as marked by two straight quarters of contraction.

Japan was last in recession through the second quarter last year.

"Sales at stores are likely to fall, which is having the largest impact, even as the share of people ... going out despite the emergency measures is rising," said Masaaki Kanno, chief economist at Sony Financial Holdings.

The poll found Japan's economy would grow at a much slower rate over the next two quarters than the United States, which is said to be on track to recover all the output it lost due to the health crisis this quarter.

Japan's growth outlook is facing pressure from slowing economic activity and demand at home, both hit by the government's move to extend the coronavirus emergency curbs in Tokyo and other major areas through June 20.

The economy is likely to expand around 4.8per cent on an annualised basis in the third quarter, below the 5.3per cent growth projected by economists last month and compared to a much higher annualised rate of 7.0per cent in the world's top economy.

Core consumer prices, which exclude volatile fresh food prices, are set to rise 0.2per cent this fiscal year, the poll also showed, down from 0.3per cent projected last month.


Japan's economy has suffered from a decline in private consumption, which accounts for more than half of GDP, as people forego spending on services amid coronavirus curbs and a late vaccine rollout.

Twenty-eight of 37 economists said it was unlikely or very unlikely private consumption would recover to pre-coronavirus levels this year, while the other nine said it was likely or very likely to do so, the poll showed.

But if the health crisis subsides, the economy may be poised to see a sharp spending rebound, as people's savings have risen while the jobless rate remains below 3per cent, said Yuichi Kodama, chief economist of the Meiji Yasuda Research Institute.

"People's self-restraint is likely to continue, so a rebound may be delayed," Kodama said, adding that the spread of coronavirus variants posed a risk to the economy.

The poll also showed the BOJ was expected to hold its short-term interest rate target at -0.1per cent and the 10-year Japanese government bond yield target around 0per cent at its policy meeting on June 17-18.

Analysts were divided about what the central bank may do if it were to eventually tighten its policy framework.

Most widely expected options were for the BOJ to tweak its forward guidance wording, to raise the 10-year JGB yield target from around 0per cent, or to abandon its negative rate policy and raise short-term interest rates, the poll showed.

(For other stories from the Reuters global economic poll)

(Reporting by Daniel Leussink; Additional reporting by Kaori Kaneko; Polling by Hari Kishan and Md. Manzer Hussain in Bengaluru; Editing by Ana Nicolaci da Costa)

Source: Reuters


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