Japan’s central bank has warned that the country’s gross domestic product could contract in the first half of the year in the aftermath of the earthquake and tsunami that stalled the weak economic recovery, according to The Wall Street Journal. On Friday, the Bank of Japan’s Governor Masaaki Shirakawa said officials “are now expecting production and GDP will decline in the first quarter and the second quarter.” The bleak forecast is in line the with ESP forecast survey of 43 economists for April that predicted a 0.22% annualized contraction the first quarter of 2011 and a 2.83% contraction in the following three-month period.
Shirakawa described a “severe supply shock” as being “the heart of the problem,” and offered his assurance that policymakers “are always carefully monitoring the situation and if we think it is necessary,” he confirmed the bank is “ready” to offer additional action. Separately, the Organization for Economic Cooperation and Development has advised in a regular report on Japan that the country rise sales tax to finance reconstruction following the earthquake, as well as prepare to buy more bonds to keep longer-term rate increases in check.
Click here to read the story on Shirakawa’s forecast from The Wall Street Journal.
Click here for coverage of the OECD report from The Wall Street Journal.