Japanese economy expected to show slowing growth

Official figures out later will show the
strength of Japan’s economy in the second quarter of the financial year.

Exports helped lift the economy by 1.2%
in the first quarter between January and March, but there are fears they may be
dropping off as the yen strengthens.

The data should confirm that China
remains poised to overtake Japan as the world’s second biggest economy.

That will become clearer early in 2011
when GDP figures for the whole of 2010 become available for each country.

China was close to overtaking Japan as
the second largest economy in 2009.

Analysts believe that Japan’s economy
will have continued to grow during the April to June period, but at a slower
pace.

Deflation

Latest figures showed that Japanese
exports rose in June but at a slower pace than in recent months, raising
questions about the strength of the country’s economic recovery.

The yen hit a 15-year high against the
US dollar last week – adding to worries about the impact on exporters.

Demand at home in Japan has been weak too,
with deflation, or a fall in prices, returning to the economy.

The country’s industrial production also
fell in June compared to the month before, although it was up on the same time
a year before.

Analysts have also warned that austerity
measures introduced by governments around the world to reduce debt levels could
also hit Japan’s exports later this year.

‘Financial measures’

“With the need to rebuild its
public finances, the Japanese government has its hands tied,” said
Norinchukin Research Institute economist Takeshi Minami, who believes further
stimulus is needed.

“Japan needs to quickly implement
measures to tackle the strong yen, including currency intervention.

“The government will shift its
focus towards financial measures through the Bank of Japan, such as currency
intervention or pumping extra money. It needs to continue maintaining an easy
monetary policy.”

Japan’s new Prime Minister, Naoto Kan,
recently said the country was at “risk of collapse” under its huge
debts.

The country’s central bank also
announced a scheme to offer 3tn yen in low interest loans in an effort to spur
economic growth.

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