Goldman: Japan probably in recession

Japan has probably fallen into recession, ending the nation's longest period of growth in more than 60 years, according to Goldman Sachs Group Inc.

Factory production will fall from a fourth-quarter peak, while consumer spending and the construction industry are slowing, Tetsufumi Yamakawa, Goldman's chief Japan economist, wrote in a report.

"The recession is a product not of an anticipated recession in the US triggered by the subprime loan problem, but a slump in domestic demand," Yamakawa said.

Sluggish spending by households leaves the economy more dependent on overseas markets just as cooling US demand threatens to spread to Asia, where Japan sells half its exports. Shipments overseas rose at the slowest pace since 2005 in the fourth quarter of last year, Bloomberg data show.

The decline in industrial output ends six years of increases that fueled corporate investment and hiring, Yamakawa said. A slowdown in export growth, the engine that drove the economy's third-quarter expansion, is becoming "more pronounced", he added.

Shipments to China, when measured by volume, grew in the fourth quarter at half the pace of the previous period, according to Goldman. Exports to the United States fell in each of the last four months of 2007.

Housing starts have plunged in the five months since June because of a permit logjam caused by new government regulations. The slowdown, the worst in 40 years prompted the central bank to cut its evaluation of the economy for the first time in three years.

The Bank of Japan may lower its key interest rate from 0.5 percent this year, according to overnight interest-rate swaps trading. Investors see a 58 percent chance of a cut by July, calculations by JPMorgan Chase & Co show.

"It appears highly likely that the economic expansion that has continued for nearly 70 months since early 2002 has come to an end and the economy has entered a recession for now," Yamakawa said.

Agencies

(China Daily 01/29/2008 page16)