Japan Recession May Be Worst in 50 Years, Momma Says

By Mayumi Otsuma

Feb. 9 (Bloomberg) -- Japan’s economy is deteriorating at a pace unseen in the past half century, the central bank’s chief economist said.

“Japan’s recent economic decline is faster than that of the U.S., which has been experiencing the worst financial crisis in a century,” Kazuo Momma, head of research and statistics at the Bank of Japan, said in a speech in Tokyo today.

Bank of Japan policy makers last month forecast the steepest contraction in the postwar era as exports dry up. Nissan Motor Co. today said it will cut 20,000 jobs and post a net loss this fiscal year, the latest casualty of Japan’s export collapse that has forced Toyota Motor Corp., Panasonic Corp., Hitachi Ltd. and Sony Corp. to predict losses and shed workers.

Momma said the world’s second-largest economy may have shrunk at an “unimaginable” speed last quarter and is likely to slump at a similar rate in the three months ending March.

Gross domestic product fell at an annual 11.7 percent pace in the fourth quarter of 2008, according to the median estimate of 23 economists surveyed by Bloomberg News. That would be the steepest decline since 1974. The GDP figures are scheduled for release on Feb. 16.

Businesses will keep cutting spending and workers, Momma said. Machinery orders, an indicator of spending plans, slid 1.7 percent in December from a month earlier, the third straight drop, the Cabinet Office said today.

Scrapped Spending Plans

“The decline in business investment will become more pronounced,” Momma said. “Manufacturers are either postponing or scrapping plans to expand production capacity.”

The economy will shrink 2 percent in the year starting April 1, central bank board members forecast last month, exceeding a 1.5 percent decline in the year ended March 1999 to become the sharpest since 1945. Japan will recover to expand 1.5 percent in the year ending March 2011, a projection that Momma said has “downside risks.”

“The employment situation will become more and more severe from now on,” the economist said.

Japan’s unemployment rate climbed to 4.4 percent in December from 3.9 percent in November, the steepest increase in 41 years. Panasonic, Hitachi and NEC Corp. announced a combined 39,000 job cuts in the past two weeks.

“Auto, semiconductors and machinery -- Japan’s three biggest industries -- have been suffering huge shocks,” Momma said.

Having cut interest rates to 0.1 percent, the central bank is buying corporate debt and shares held by financial institutions to help channel cash to companies hurt by the global credit crisis.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net