Japan sinks deeper into recession in 3Q

Japan fell into a deeper recession in the third quarter than first thought, the government said on Tuesday, as exports weakened, domestic demand fell and companies bracing for a prolonged downturn pared inventories.
The Cabinet Office said that Japan’s economy shrank at an annual pace of 1.8% in the July-September period, compared with its original estimate of a 0.4% contraction.
The figure was much worse than market expectations for a 0.9% decline in gross domestic product, underscoring the severity of the slump that the world’s second largest economy is mired in.
The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualized 3.7 percent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.
“The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year,” said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report Tuesday.
With business conditions deteriorating, companies likely reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.
Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll
A growing number of exporters big and small also hurt by a stronger yen are slashing their expectations for profit, sales and spending.
Toyota Motor Corp. has cut its full-year net profit forecast to $5.5 billion about a third of last year’s earnings.
Indeed, the worst may be yet to come, since the third-quarter data do not fully reflect the global reverberations from the collapse of US investment bank Lehman Brothers in mid-September.
The Bank of Japan recently slashed its projection for economic growth to just 0.1% for the year through March, compared with the 1.2% growth projected in July.
Economists expect the central bank’s closely watched “tankan” survey, due out Monday, to show a dramatic plunge in corporate confidence.

Japan slips into recession

The key benchmark indices extended losses in mid-morning trade on a
deteriorating global outlook as Japan joined the list of economies
in recession. The BSE 30-share Sensex was down 335.74 points, or
3.58%. Measures announced by the Reserve Bank of India (RBI) during
the weekend to shield the Indian economy from the global economic
slowdown and pledges from leaders of the Group of 20 nations to
stimulate growth and reform the financial system, failed to avert
the slide.

Japan slid into its first recession in seven years in the third
quarter as the financial crisis curbed demand for Japanese exports.
Despite the weak data, the the Nikkei rose 0.7% in a choppy trade,
with buying by pension funds lifting the market. Stocks elsewhere
were mixed. Key benchmark indices in Hong Kong, Singapore and China
were up by between 0.27% to 0.43%. Key benchmark indices in South
Koera, Taiwan fell by between 0.3% to 0.52%.

The G20 political leaders agreed Saturday, 15 November 2008, to a
host of fiscal and monetary steps to rescue the global economy but
it was left to individual governments to tailor their response to
their particular circumstances and troubled industries.

RBI on Saturday, 15 November 2008, announced measures to improve
money market liquidity and help exporters. The measures include
extension of a special repurchase facility to provide liquidity for
mutual funds and non-banking finance companies till March 2009,
increase in the limit on export credit refinance available to
banks, allowing housing finance companies to raise funds through
short-term overseas borrowings, reduction in provisioning on
standard assets of banks to a uniform level of 0.4%, and reduction
in risk weights for banks on commercial real estate and on unrated
claims on corporates.

The central bank also said it would consider proposals from local
firms to buy back foreign currency convertible bonds early.

At 11:33 IST, the BSE 30-share Sensex was down 335.74 points, or
3.58%, to 9,049.68. At the day's high of 9,435.89 hit in early
trade, the Sensex gained 50.47points. The Sensex fell 369.08 points
at the day's low of 9,016.34 in mid-morning trade.

The S&P CNX Nifty fell 100.15 points, or 3.56%, to 2,710.20.

The market breadth, indicating the overall health of the market,
was weak. On BSE, 407 shares rose as compared with 1607 that
declined. 51 shares remained unchanged.

Among the 30-member Sensex pack, all the stocks were in red.

India's largest private sector company by market capitalization and
oil refiner Reliance Industries (RIL) slipped 4.4% to Rs 1,098. The
government on Friday, 14 November 2008, said RIL cannot sell gas to
anybody at a price less than $4.20 per British Thermal Units
without its approving the pricing formula.

Sterlite Industries (down 8.93% to Rs 206.90), Reliance
Infrastructure (down 5.34% to Rs 489) and Hindalco Industries (down
4.95% to Rs 53.80) were the losers from the sensex pack.

PSU OMCs were mixed as crude oil prices fell. BPCL and HPCL rose
between 1.12% to 2.23%. Indian Oil Corporation fell 1.38%.

Realty shares dropped on concerns banks may not raise lending to
realty firms despite the latest Reserve Bank of India measures to
ease lending to the cash-stripped sector. Realty majors, Indiabulls
Real Estate, Parsvnath Developers, Unitech, DLF fell by between
4.94% to 8.52%.

RBI reduced risk weights for commercial real estate to 100% from
the earlier 150%. This measure is expected to encourage banks to
lend more to the fund-starved sector. In order to ensure more
liquidity for the real estate sector, RBI also allowed the
registered housing finance companies to raise short-term funds from
overseas markets.

Despite the measures, experts doubt whether banks will raise
lending to the realty sector given the severe slowdown and
increasing risk of non performing assets (NPAs).

Banking stocks extended losses as weak American Depository Receipts
(ADRs) offset Reserve Bank of India's steps to augment both rupee
and dollar liquidity in the banking system. India's largest private
sector bank by net profit ICICI Bank fell 7.72% as ADR lost 6.56%
on Friday, 14 November 2008. India's second largest private sector
bank by net profit HDFC Bank fell 6.98% as ADR slumped 6.39% on
Friday. India's largest commercial bank State Bank of India (SBI)
lost 2.77%.

IT stocks were down on weak ADRs and stronger rupee. India's third
largest IT exporter by sales Satyam Computer Services fell 3.8% as
its American depository receipt (ADR) fell 9.68% on Friday, 14
November 2008.

India's second largest IT exporter by sales Infosys slipped 3.23%,
as ADR fell 5.68%. India's fourth largest IT exporter by sales
Wipro lost 2.43% as ADR slipped 13.36%. India's largest IT exporter
by sales Tata Consultancy Services lost 1.87%.

The Indian rupee strengthened on Monday buoyed by the central
bank's measures to encourage foreign deposits, but gains were
capped as a fall in the stock market raised concerns of further
capital outflows. The partially convertible rupee was at 48.87/90
per dollar, 0.3% stronger than 49.01/03 at the close on Friday 14
November 2008. A stronger rupee impacts operating margins of IT
firms as they earn most of their revenue in dollar terms.

Cement stocks slipped even as the government announced incentive to
cement exports. ACC, Grasim Industries, Ultratech Cement, Birla
Corporation, Ambuja Cements fell between 1.59% to 3.56%.

According to a government notification, exporters of cement and
several steel items will be entitled for tax refunds through duty
entitlement pass book scheme. The government also announced that
the two sectors cement and steel have been included in the Focus
Market Scheme which will enable these distressed industries to
boost their exports to the third world.

India's largest engineering and construction firm by sales Larsen &
Toubro slipped 1.58% despite reports of the company in talks with
Antwerp Port Authority to establish a greenfield port in the west
coast of the country. The venture will initially invest Rs 2000
crore into the port.

Godrej Consumer Products rose 1.55% after a block deal of 17.20
lakh of equity shares was struck on the counter on BSE at Rs
116.50.

United Breweries moved up 5.15% after a block deal of 5.30 lakh of
equity shares was struck on the counter on BSE at Rs 93.

Godawari Power & Ispat was up 4.01% after the company said it will
re-consider a share buyback proposal that was approved on 27
October 2008.

Apollo Tyres gained 2.02% on reports it plans to invest Rs 3000
crore in the next five years for expansion.