Japanese Prime Minister Taro Aso was expected to outline a new stimulus plan for the world's second-largest economy later on Tuesday, two days before world leaders gather to discuss ways out of the global crisis.
Rising unemployment and falling spending showed Japan was still stuck in its worst recession in 60 years and underlined the parlous health of the global financial system already buffeted this week by the possible bankruptcy of US automakers.
Tuesday's data from Japan showed a worrying trend for an export-driven economy mired in its worst recession since World War Two and for Aso's unpopular government as a slump in external demand feeds into the domestic economy.
Japanese unemployment hit a three-year high of 4.4%, and may be headed above 6%, some analysts say, while the number of new jobs sank to a six-year low. At the same time household spending slid 3.5% from a year earlier, falling for a 12th month in a row.
The Japanese economy may have hit bottom in the first quarter this year but there may be more bad news to come, analysts said, as well as the political realities of a leader with dismally low popularity ratings ahead of a general election which must be held by October.
“Unlike in the United States, where they had a new and popular administration announcing the measures, Prime Minister Aso is unpopular and many will be expressing skepticism about how effective the economic package will be in propping up the ailing economy,” said Naoki Iizuka, senior economist at Mizuho Securities.
The yen slipped to 98.22 per dollar following the unemployment and spending data, while stocks . gave up early gains and ended 1% lower as investors awaited more details of the new stimulus package.
Aso was expected to map out his government's third stimulus package, which Japanese media said would run for three years and aim to create ¥60 trillion ($612 billion) worth of demand and 2 million jobs.
The latest plan is part of a broader package Aso wants in place by mid-April to bolster ¥12 trillion of earlier measures, a senior ruling party lawmaker told reporters.
Some lawmakers want an extra budget of more than ¥10 trillion ($102.5 billion), the Asahi Shimbun newspaper reported.
The latest gloomy news on Japan's economy is likely to weigh heavily at the G20 meeting in London on Thursday.
Leaders from the Group of 20 rich and big developing countries will address a crisis that has felled major banks and cost millions of jobs as the world faces its biggest recession since the 1930s.
Officials have already acknowledged the G20 summit would fall short of an overhaul of the world economy. US and European leaders have also differed over whether more spending or more regulatory reform are the better response to the crisis.
“There are tremendous downside risks to this global outlook,” Asian Development Bank President Haruhiko Kuroda said while releasing the bank's annual outlook in Manila on Tuesday.
“The effectiveness of the global responses to the crisis remains uncertain. Loud calls for protectionist policies are becoming worrisome. As job losses in the major industrialized countries continue, the protectionist voices may only get louder.”
Leaders from the United States, Europe and Asia will have plenty of sobering news to consider this week in London.
On Monday, Standard & Poor's cut Ireland's prized AAA credit rating to AA-plus and said it could drop further. The Bank of England also moved to prop up another lender, Scottish building society Dunfermline.
Spain, among Western Europe's hardest-hit economies, also rescued its first bank since the crisis began.
Developing economies have not been spared, with the ADB forecasting growth will slow this year to the lowest rate since the 1997/98 financial crisis, with any rebound next year contingent on a recovery in the global economy.
The ADB said on Tuesday Asia's developing economies, which include China, India, the economies of Southeast Asia, South Korea and Central Asia, should register average GDP growth of 3.4% this year, down from 6.3% in 2008.
As late as December it had forecast average growth of 5.8%. It said China, the world's fastest growing economy, will grow of 7% this year, down from 9% in 2008.
World stock markets tumbled on Monday after US President Barack Obama rejected restructuring plans from automakers General Motors and Chrysler, potentially pushing them closer to bankruptcy.
But Asian stocks edged back up on Tuesday as some investors bet the most painful stretch of corporate earnings damage may be over as the first quarter and Japan's financial year drew to a close.
Asian stocks outside Japan were set to finish the quarter with a dip of 0.7% but were up 15% in March in what would be the largest rise since 1999. (Reuters)