American Crisis Moving Eastward? The Asia-Pacific region attracted some attention this morning as it became apparent that Japan’s economy is not in quite such a terrible situation as economists expected in their second quarter assessments. This may be a signal that the Japanese people are beginning to come around a bit after the tragic March earthquake and tsunami that hit the country and even despite the yen’s appreciation that is threatening to slow exports.
Japan’s cabinet of ministers announced today in Tokyo that gross domestic product went down 1.3% in annual terms in the second quarter of this year, continuing a steady decline the past three quarters. According to the average forecast of 25 economists polled by Bloomberg, GDP was expected to fall 2.5%.
Such large companies as Toyota Motor Company and Sony managed to repair their facilities damaged from the March 11 earthquake and produce the largest increase in industrial production from April through May since 1953. Japan also performed a currency intervention on August 4 for the first time since March in order to halt the yen’s appreciation against the dollar and thereby ease the recovery of the world’s third largest economy. “The Japanese economy is returning to a normal track after the earthquake and subsequent economic slump,” said Hiromichi Shirakawa, head economist with Credit Suisse in Tokyo. “But the clouds are gathering over world economy forecasts,” which means that “the Japanese economy is exposed to increased risk.” The 5% growth of the yen against the dollar over the past three months has worsened the long-term economic forecast, which for the most part is focused on exports. A strong currency makes Japanese goods less competitive overseas and depreciates foreign exporters’ revenue that is repatriated in yen, DT Trading analysts explain. The yen against the dollar continues to be higher than 82.59 – the average rate at which Japanese companies place their profit forecasts, according to the Bank of Japan’s quarterly report on business activity.
The Australian economy may be able to “cope with” the turbulence on the world markets thanks to a fairly strong predicted GDP growth and the subsequent development in China, Australia’s biggest trading partner. Wayne Swan, the country’s treasurer, said on Sunday that “Australia has a very low level of government debt, low unemployment, a large stream of investment, and we expect to again bring our budget into the black in the next fiscal year.” Although Australia is not immune to what is happening in the rest of the world, “forecasts for our region are, as before, significantly stronger” than for Europe and the US, Swan added.
The Australian treasurer went on to explain that global economic forecasts will remain unclear until the US and Europe strive to decrease their debts and make their budgets more stable. He also emphasized that there is a basis for more “optimistic” forecasts on the continuing development in China if income from this development also increases.
Since the beginning of the new round of the crisis in America and Europe, the Australian dollar fell 0.8% in five days, reaching $1.0355 by August 12, after reaching a record high of $1.1081 on July 27 of this year. DT Trading analysts note that yields on 10-year Australian bonds dropped to 4.43%, their lowest closing level since April 2009, losing 4 basis points since August 5.
The turmoil in the market is making the task of cutting the budget deficit and achieving a total surplus in the 2012/13 financial year more difficult for the Australian government, Swan concluded.