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IMF cuts Japan forecast, calls for debt measures
by Staff Writers
Tokyo (AFP) June 8, 2011

Japan's current account surplus down 69.5% in April
Tokyo (AFP) June 8, 2011 - Japan's current account surplus plunged 69.5 percent from a year earlier in April, the finance ministry said Wednesday, as the March earthquake and tsunami badly hampered factory production.

While the drop was much smaller than falls of more than 80 percent forecast by economists, it was the smallest surplus for the month of April in 26 years.

The surplus in the current account -- the broadest measure of trade with the rest of the world -- fell to 405.6 billion yen ($5.0 billion) in April from 1.33 trillion yen a year earlier, official data showed.

Japan logged a trade deficit of 417.5 billion yen in April, reversing a surplus of 871.1 billion yen a year earlier.

The trade balance "fell into the red as imports grew against a fall in exports due mainly to the impact of the East Japan Great Earthquake", the finance ministry said in a monthly report.

Analysts say the decline in the current account surplus was widely expected because of the damaging impact of the March disaster, which shattered supply chains and caused major production disruption to Japan's biggest companies.

But with the supply chain rapidly coming back online, they say Japan's exports are likely to recover and expect the surplus will not contract much further.

"Companies have been resuming production and goods have started moving but a recovery in exports has been slow so far," said Satoshi Osanai, economist at Daiwa Institute of Research.

"The supply chain has been recovering faster than expected but (the final products) may not be reaching ports yet" for export, he said, adding it would be only a matter of time for exports to recover on solid foreign demand.

The International Monetary Fund on Wednesday lowered its 2011 growth forecast for Japan and called on the world's third largest economy to adopt "more ambitious" measures to tackle its huge debt.

The IMF cut its growth forecast for Japan in 2011 to minus 0.7 percent from the plus 1.4 percent it had predicted in April after the country was hit by its biggest recorded earthquake and a devastating tsunami.

However, the fund said it expected Japan to stage a rebound after the summer and upped its 2012 GDP growth forecast to 2.9 percent from an earlier estimate of 2.1 percent.

"Japan's economy continues to face headwinds from the earthquake but should start to recover strongly in the second half of the year," the IMF said in a statement.

"The initial shock of the disaster was severe, but swift and decisive action by the government and the Bank of Japan helped to limit its impact on the economy," it said.

The impact of the earthquake, tsunami and a subsequent nuclear emergency at the crippled Fukushima Daiichi nuclear plant plunged Japan into its worst crisis since World War II, with nearly 24,000 people dead or missing.

The economy slipped into a technical recession, after many of Japan's biggest firms faced massive production disruption amid power shortages and broken supply chains.

The government last month passed an emergency reconstruction budget. In the aftermath of the disasters, the BoJ injected a record amount of cash into the banking system, and set up a lending scheme for banks in disaster-hit areas.

Power infrastructure must be fully restored to ensure stable production and economic activities, IMF officials said, as companies scramble to devise ways to save on energy use.

Analysts have meanwhile warned that the costs of reconstruction threaten to further pressure a public debt that, at around 200 percent of GDP, is the industrialised world's highest.

The IMF said given Japan's fiscal pressures it could finance reconstruction work with various tax measures and needed to implement a more aggressive plan to lower its debt to maintain global investor confidence.

"Japan needs a more ambitious medium-term strategy for bringing down public debt to maintain confidence in public finances," the IMF said, adding that this could be helped by increasing the five percent consumption tax.

The IMF report assumes a consumption tax hike to about seven or eight percent from next year, and ultimately to about 15 percent in a decade.

IMF acting managing director John Lipsky said Japan's economic partners also demand Tokyo to put its finances in order.

"Japan's partners are not particularly worried about Japan's growth outline. What they are concerned about is the importance of Japan establishing credible, medium-term fiscal consolidation policies," Lipsky told reporters.

"It's obviously not possible to imagine that Japan's debt to GDP ratio will continue to rise indefinitely in the future," he said.

"It seems clear that actions will be needed to halt and ultimately reverse this trend," he said.

Japan has one of the planet's lowest birth rates and highest life expectancies, but political turmoil after Prime Minister Naoto Kan last week offered to resign in the future has raised doubts over the government's ability to formulate effective policy.

Lipsky added the yen's current strength would not be a problem for Japanese growth but that G7 nations stand ready to intervene again following the group's joint currency market move after the yen soared in the wake of the disasters.

earlier related report
Possible successors to Japan PM Kan
Tokyo (AFP) June 8, 2011 - Japan's embattled centre-left Prime Minister Naoto Kan has pledged to step down once the March 11 quake and tsunami recovery is well underway, setting off speculation on who will replace him.

Here is a list of potential successors from the ruling Democratic Party of Japan (DPJ) who could replace Kan as early as this summer:

Seiji Maehara, 49:

Telegenic and relatively young, this conservative and hawkish former foreign minister was once dubbed "Japan's Tony Blair", but has a funding scandal hanging over his head that led him to step down as minister this year.

Maehara gained prominence last year during a bitter spat with regional and historical rival China and neighbour Russia in separate island disputes.

Long seen as a politician of prime ministerial calibre, he is a self-made lawmaker in a political world long dominated by the offspring of former politicians. He led the party from 2005 to 2006.

A graduate of the elite Kyoto University, Maehara attended the private Matsushita Institute of Government and Management which uses tough workouts and meditation in its programme to forge modern political leaders.

Maehara quit the Kan cabinet in March after admitting to receiving around $3,000 in donations from an ethnic Korean restaurant owner, a family friend since his childhood, in contravention of Japanese law.

Katsuya Okada, 57:

Okada is a former party chief with a "Mr Clean" image who served as a foreign minister after the DPJ came to power over two years ago.

Under the first DPJ premier Yukio Hatoyama, Okada handled a tricky row over the relocation of an unpopular US airbase on Okinawa island which badly strained US ties and ultimately led to Hatoyama's downfall.

A law graduate from prestigious Tokyo University who also studied at Harvard, Okada is known for his deep policy knowledge.

Sometimes dubbed the "fundamentalist" or "RoboCop" for his strict adherence to principle and refusal of all gifts, even flowers and chocolate, he is also seen as inflexible and lacking a gift for negotiation.

A passionate supporter of denuclearisation, he had pushed China to reduce its nuclear arsenal, at times angering Beijing.

He is the second son of Takuya Okada, who turned his family business into one of Japan's two biggest supermarket operators, Aeon.

Yoshihiko Noda, 54:

The current finance minister is a fiscal hawk who has attempted to cut the industrialised world's biggest public debt and fended off political pressure to stimulate the economy through greater public spending.

Also a graduate of the Matsushita Institute, Noda has supported reforms, including publicising all spending by lawmakers and their political groups.

Last autumn, he conducted massive and repeated yen-selling interventions to lower the soaring value of the Japanese currency that hurt the export sector, Japan's main economic engine.

His oratorical skills on the campaign trail are well known among Japan's political community. He is a judo black-belt.

Yukio Edano, 47:

Chief Cabinet Secretary Edano is Japan's top government spokesman and rose to prominence in and beyond Japan in the weeks after March 11, giving several daily televised briefings on the ongoing Fukushima nuclear crisis.

His tireless work and calm manner won Edano, then dressed in a blue workman's suit, public admiration and lavish praise on micro-blogging site Twitter, making him a folk hero of sorts.

Despite his policy knowledge and political skills, his relative youth is considered a risk in the Japanese political world.

Yoshito Sengoku, 65:

Edano's predecessor and now his deputy, Sengoku is a party veteran who was nicknamed Kan's "shadow prime minister" while he served as a chief cabinet secretary, a post he was forced to quit in January.

A lawyer by profession and one-time Socialist Party member who has held several key DPJ positions including policy chief, Sengoku enjoys an "elder brother" status within the party.

He has advocated closer ties with China and other Asian countries, and has pushed for market reforms, fiscal austerity and clean politics.

He was forced out after a censure motion by the opposition Liberal Democratic Party over his handling of the China spat last year.

Despite the animosity, he has managed to forge close ties with senior members of the LDP and is now reportedly leading talks to explore the idea of a post-March 11 grand coalition government between the major parties.

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Japan Q1 GDP revised to annualised 3.5% contraction
Tokyo (AFP) June 9, 2011 - Japan's economy contracted by slightly less than first estimated in the January-March period, data showed Thursday, after the impact of a devastating earthquake and tsunami pushed it into recession.

Japan revised upward its first-quarter GDP reading to an annualised 3.5 percent contraction from a 3.7 percent shrinkage, but the change was smaller than economist forecasts of minus 3.0 percent.

On a quarterly basis the reading was unchanged. Gross domestic product fell 0.9 percent in the first quarter compared with the previous three months, and marked the second consecutive quarter of contraction, which economists define as a technical recession.

"The overall picture that private consumption and corporate capital spending dropped due to supply disruption and deterioration in consumer sentiment following the quake remains unchanged," a Cabinet office official said.

Japan's economy had contracted by a revised annualised 2.9 percent in the October-December quarter due to falling consumption and exports. Japanese GDP data is subject to constant revision.

Before the disaster, analysts had predicted that the nation's economy would return to growth in the first quarter on rising overseas demand.

Instead, the nation's biggest recorded earthquake and a tsunami left nearly 24,000 dead or missing, and along with a subsequent nuclear crisis forced the economy into its sharpest contraction since a record 18.0 percent tumble in January-March 2009.

In the aftermath of the disaster, industrial output saw its biggest ever fall and spending plunged as consumer and business confidence took a heavy hit.

Private consumption, which accounts for nearly two-thirds of the economy, was down 0.6 percent. Japan adopted a mentality of self-restraint in the aftermath of the disaster, which is slowly easing.

Many of Japan's biggest companies saw profits tumble in the quarter and delayed forecasts due to the scale of the disaster's impact on production and sales.

The likes of Sony and Toyota were forced to halt production. Many component manufacturers are based in the worst-hit regions of Japan, their facilities damaged by the earthquake or inundated by the giant wave that followed.

While fears of an electricity supply-demand imbalance going into the summer months have eased slightly, the situation remains volatile, analysts warn.

On Wednesday the International Monetary Fund said it cut its growth forecast for Japan in 2011 to minus 0.7 percent from the plus 1.4 percent it had predicted in April.

Having gone into recession, analysts and the IMF say the economy should start to grow again in the third quarter as initial earthquake-related disruption is overcome and reconstruction spending starts to boost the official figures.

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