Japan’s Economy Could Slowdown in 2008

This year could be a crucial one for the Japanese economy since it may bring the end to the expansion initiated in 2002. In fact, last week the BoJ lowered its forecast for economic growth from 2.1 per cent to 1.5 per cent for this fiscal year.

Although, Japan's economy grew more than economists predicted in Q4 and the forecast for Q1 looks promising, several economic indicators are beginning to show that the slowdown is about to come. For example, factory production fell 3.1 per cent in March from the previous month, the biggest tumble since the current index for measuring output began five years ago. Also, job offers are clearly shrinking with the job-to-applicant ratio falling to a three-year low. As a result, real household spending fell 1.6 per cent from a year earlier in March.

Indeed, last week The Bank of Japan economists agreed that the influence of America's financial turmoil is not over. Exports to the United States are falling and the growth in exports to Asia and Europe is slowing. Furthermore, a stronger yen is beginning to squeeze profits of Japanese companies. Since, one yen now buys fewer goods, Japanese consumers and companies are worse off.

Anna Fedec, analyst@tradingeconomics.com
5/6/2008 8:17:26 PM