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Monday, May 9, 2011
Stimulating the economy
Economic reports made public April 28 by the government and the Bank of Japan underscore the rapid deterioration of the Japanese economy in the aftermath of the March 11 earthquake and tsunami and the Fukushima nuclear plant accidents.
A trade and industry ministry report states that the industrial and mining production index for March sank a record 15.3 percent from the previous month — surpassing the 8.6 percent drop in February 2009 after the Lehman Brothers shock. Overall production activities fell 31.9 percent in the devastated areas and 13.5 percent in other areas.
Transport machinery production suffered a record 46.4 percent drop, apparently due to the disruption of the parts supply chains. Japan's car industry, which is expected to play an important role in bringing back the economy to a path of steady recovery, is in bad shape.
The psychological effects of the disasters and the subsequent economic downturn are damping consumer spending. An internal affairs ministry report showed that spending by households of two or more people in March was 8.5 percent lower than it was in the same month the previous year — the worst tumble since February 1974 when spending went down 7.2 percent due to the oil crisis.
It is no surprise that the Bank of Japan has taken a pessimistic stance. In its economic report the central bank lowered its forecast of economic growth in real terms for fiscal 2011 from the 1.6 percent it made in January to 0.6 percent.
Yet, the central bank's thinking suggests that it expects nationwide supply chains to be repaired and power shortages caused by the nuclear crisis to lessen by autumn. The bank forecasts that the economy will grow 2.9 percent in fiscal 2012, up from the 2 percent forecast in January.
Outside Japan, food and raw material prices are rising. Consumer prices in Tokyo rose 0.2 percent in April from a year before — the first rise in 25 months — reflecting price rises abroad as well as the shortage of goods following the earthquake and tsunami.
The Bank of Japan should carry out a monetary policy designed to help stimulate economic activities while paying close attention to price movements.