Japan's GDP Could Fall Nearly 6% in 2009   

• After sitting on their hands for most of 2008, the Bank of Japan is recently looking like the energizer bunny, i.e., one big bundle of intense activity.
• In its October 2008 medium-term economic outlook, the BOJ saw Japan's economy flattening at 0~0.5% growth. By February the BOJ had changed its tune, saying "the economy is significantly deteriorating and will most likely continue to deteriorate for some time". Reflecting this view, the Bank cut its GDP forecast to -2.0% for 2009, while Japan’s cabinet office was still projecting 0.0% for 2009 GDP in its January 2009 forecast.
• The BOJ repeated its bearish view of the economy in its March review. While declines in production should abate somewhat in Q2 as inventories are reduced, both exports and private capital expenditures continue to show "large declines", and the BOJ sees Japan's economy continuing to deteriorate going forward.
• Consequently, the BOJ (like the US) is now moving to more aggressively use its balance sheet to ensure that Japanese bank balance sheet impairment does not choke off the crucial supply of credit that is the lifeblood of corporate activity is laudable, but woefully behind the curve in coming to grips with the downturn. The government, on the other hand, is not even in the ball game. All they seem to be able to come up with is a PKO (price keeping operation) to prop up stocks.
• BOJ actions are too late to prevent a combined two-year GDP drop (2008~2009) that will approach 9%. A QUICK survey of the  March TANKAN indicates a minus 54 DI (diffusion index) for large corporations, which will be the worst since May 1975. Moreover, while the same survey revealed that domestic economists were now expecting minus 4.3% growth in 2009, the IMF has recently slashed their forecast for Japan’s 2009 GDP from -3.2% to -5.8%, versus -2.6% for the US and -3.2% for the Euro.
• Taken in this light, it is questionable whether the recent new lows in the Nikkei 225 (and other global markets) have completely discounted the new GDP downgrades and the extending of the expected bottom in "The Great Recession", even though most GDP forecasts still call for a return to growth in 2010.

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