Japanese Economy May Shrink 3.8% Next Fiscal Year, Muto Says

By Mayumi Otsuma

Feb. 4 (Bloomberg) -- Japan’s economy may shrink more than 3.8 percent in the year starting April 1 as exports decline, according to Toshiro Muto, a former central bank deputy governor.

“All the bad news has emerged from overseas,” Muto, who now heads the Daiwa Institute of Research, said in a speech in Tokyo today. “We can’t help but say the Japanese economy remains export-driven and the next recovery will probably be also led by exports.”

Muto said the number could be worse, after reports last month showed production and shipments abroad fell at a record pace in December. His projection is more pessimistic than the Bank of Japan’s forecast for a 2 percent contraction. Both would still be the sharpest decline in the postwar era.

The world’s second-largest economy may have shrunk as much as 12 percent on an annualized basis in the last quarter of 2008, the former central banker said. Muto served on the policy board for five years until March 2008.

The U.S. budget deficit is expanding rapidly because of economic stimulus measures, increasing the risk of weakening the dollar and driving long-term interest rates higher, Muto said. When including President Barack Obama’s $819 billion dollar stimulus package, the shortfall will swell to the equivalent of about 11 percent of nominal gross domestic product in 2009, more than double Japan’s 4 percent, he said.

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