Finance Blog number 1

The Bank of Japan extended its emergency-credit programs until the end of the year and cut its economic forecasts as companies struggle to borrow amid the country’s worst postwar recession.

“Financial conditions are improving but companies are still unconfident about the outlook for borrowing,” Governor Masaaki Shirakawa told reporters after today’s decision. The central bank said the economy will shrink a record 3.4 percent this fiscal year, more than the 3.1 percent predicted in April.

Extending the programs of buying corporate debt from banks and providing them with unlimited loans underscores the central bank’s concern that an economic rebound may be short-lived. Political turbulence ahead of Aug. 30 elections puts a bigger onus on the board to bolster the economy, said Hiroaki Muto.

Monetary policy “will provide the only major support for the economy for now,” said Muto, a senior economist at Sumitomo Mitsui Asset Management Co. in Tokyo. “The economy is still far from a point that would allow the central bank to scale back the programs.”

The policy board also decided to keep the benchmark overnight lending rate at 0.1 percent.

Five-year government notes rose for the first time in four days, sending the yield half a basis point lower to 0.675 percent at 5:15 p.m. in Tokyo. The yen traded at 93.52 per dollar from 93.57 before the announcement.

Government Pressure

The bank began purchasing commercial paper and corporate bonds this year after lowering the key rate to 0.1 percent in December. It had 473 billion yen ($5.1 billion) of the securities on its balance sheet as of July 10. Policy makers also offered unlimited three-month loans to commercial banks at 0.1 percent in exchange for approved collateral. The bank extended the three programs to Dec. 31 from Sept. 30.

Some analysts had anticipated an extension for six months rather than three. Shirakawa said the board chose the shorter period because credit markets have picked up and policy makers would like to assess whether those improvements are sustained. Some companies are finding it easier to sell debt, while smaller and lower-rated firms are still struggling to get credit, he said.

Worst Contraction

The contraction in gross domestic product in the year ending March 2010 would outstrip last year’s 3.3 percent drop as the worst in the postwar era. The world’s second-largest economy will grow 1 percent in the following fiscal year, less than the 1.2 percent predicted three months ago, the bank said.

While the policy board cut its growth forecasts, it upgraded its monthly assessment of the economy, citing increases in government spending, exports and production cash advance.

“Japan’s economic conditions have stopped worsening,” the bank said, maintaining its view that the country will start recovering in the second half of the year ending March 2010.

The Federal Reserve and the Bank of England have already taken steps toward ending emergency-credit programs amid concern that they may fan inflation. The Fed said last month it will let one lending facility expire this year and trim two others. In the U.K., the central bank decided last week to pause from purchases of government bonds at the end of July.

More Leeway

Japan’s central bank has more leeway to keep its measures in place because they’re smaller in scale and there is little risk of inflation taking hold, said Sumitomo Mitsui’s Muto.

“The BOJ’s asset purchases are focused on pretty limited areas,” Muto said. “The bank has also experienced an exit in the past and policy makers won’t be too nervous about their strategy.”

The central bank ended an earlier quantitative easing policy in March 2006, during Japan’s longest postwar expansion.

The economy probably grew for the first time in more than a year last quarter, expanding at an annual 2.4 percent pace after plunging a record 14.2 percent in the first three months, according to economists surveyed by Bloomberg News.

The revival may not be sustained as falling profits prompt businesses to trim investment and jobs and banks remain reluctant to lend to companies, the central bank’s Tankan confidence survey showed this month. Bank lending grew at the slowest pace in eight months in June.

Any fillip from Prime Minister Taro Aso’s 25 trillion yen in stimulus spending will wear off, said Ryutaro Kono.

“Manufacturers are boosting production to replenish inventories but this is a one-time deal, while the government’s stimulus measures won’t last long,” said Kono, chief economist at BNP Paribas in Tokyo.

Aso called the election this week, and his Liberal Democratic Party trails the opposition Democratic Party of Japan in polls. The DPJ, which has never governed Japan, has 30.1 percent of support, more than the LDP’s 24.8 percent, according to a Yomiuri newspaper poll published today.

The bank will also continue to pay interest on reserves until Jan. 15. The program, which currently pays 0.1 percent on cash parked at the central bank, was set to expire on Oct. 15.

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The U.K. housing market improved last month as more London real-estate agents and surveyors said home values increased rather than fell for the first time in 20 months, the Royal Institution of Chartered Surveyors said.

Across Britain, the number of respondents saying prices dropped exceeded those reporting gains by 18.1 percentage points, the highest reading since September 2007, RICS said in its monthly survey released today in London. The balance for the capital became positive for the first time since October 2007.

The two-year long collapse in prices may be starting to end as the U.K. starts to emerge from its deepest recession in a generation. The Bank of England last week declined to extend its emergency bond-buying program, waiting until next month to reexamine its forecasts for economic growth and inflation.

“There’s a lot more optimism,” Simon Rubinsohn, chief economist at RICS, said in a Bloomberg Television interview. “There has been a wholesale shift in sentiment.”

A majority of surveyors now expect property prices to increase for the first time since May 2007, RICS said today. The indexes for new sales and buyer interest rose to the highest since 1999, according to the report.

While U.K. gross domestic product fell 2.4 percent in the first quarter, the most since 1958, the economy may now be stagnating, the National Institute of Economic and Social Research said last week. Warmer weather helped push up same- store retail sales in June by 1.4 percent from a year earlier, the British Retail Consortium said in a separate report today.

Long Haul

The economy has probably hit bottom and will pick up over time, Bank of England Deputy Governor Charles Bean said in an interview on BBC Radio Leeds yesterday. The recovery may be “a long haul,” he said cashadvance.

Lloyds Banking Group Plc’s Halifax division last week said that house prices fell 0.5 percent in June and 12.5 percent from a year earlier. Stephen Nickell, chair of the National Housing Planning and Advice Unit, said that the market won’t recover until banks become more willing to provide loans.

House prices are likely to fall further into next year before stagnating in 2011, PricewaterhouseCoopers LLP predicted in a report today.

“The recovery looks like it’s still going to be very patchy,” RICS’s Rubinsohn said. “Finance is still in short supply and unemployment is likely to keep rising.”

Parliament’s Communities and Local Government Committee said today that the government must do more to assist mortgage financing and encourage more homebuilding. The cost of two-year fixed mortgages rose to the highest this year in June, Bank of England data showed last week.

Homes Shortage

The outlook for house prices may be brighter because of a shortage of homes on the market. The average number of properties on agents’ books fell to 56.9 from 58.5 last month, a drop of 32 percent from a year earlier, RICS said.

The RICS index for prices was positive this month for London, the southwest and the southeast of England. The lowest index reading was for the West Midlands, where it was minus 48.

The Bank of England on July 9 kept the benchmark interest rate at 0.5 percent and refrained from expanding its 125 billion pound ($201 billion) asset-purchase plan. Policy makers will make their next interest-rate decision on Aug. 6.

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Singapore’s economy probably expanded for the first time in five quarters as a rebound in manufacturing helped the Southeast Asian nation emerge from its worst recession since independence in 1965.

Gross domestic product rose an annualized 13.4 percent last quarter from the previous three months, after shrinking 14.6 percent between January and March, according to the median estimate of 12 economists surveyed by Bloomberg News. The trade ministry will release the data at 8 a.m. tomorrow.

Singapore and other economies in the region are forecast to report better second-quarter figures as about $2 trillion in stimulus worldwide helps stabilize overseas sales for companies including Japan’s Nissan Motor Co. and South Korea’s Samsung Electronics Co. The International Monetary Fund last week increased its forecast for emerging Asia’s growth in 2009.

“Much healthier manufacturing-sector numbers in the second quarter are the key drivers” of Singapore’s performance, said Chow Penn Nee, an economist at United Overseas Bank Ltd. in Singapore. We “will also likely see financial services boosting the services sector, with the rally in the stock markets in April, May and June.”

Singapore’s industrial output climbed in the first two months last quarter, while the decline in the island’s exports narrowed in May amid gains in drug shipments. Manufacturing, which slid 26.1 percent in the three months ended March, accounts for about a quarter of the economy.

India, South Korea

Other Asian nations have also reported an improvement in manufacturing paydayloans. In May, India’s industrial production increased at the fastest pace in eight months, while Malaysia’s posted the smallest decline in six months. South Korea’s output rose more than estimated while China’s accelerated the same month.

Singapore’s $161 billion economy declined 5.4 percent in the three months ended June from a year earlier, compared with a 10.1 percent drop in the first quarter, according to the Bloomberg survey.

The Straits Times Index rose 37.2 percent last quarter, the biggest gain since at least 1999. The volume of stocks traded increased more than 50 percent in that period. The index was 0.3 percent lower as of 9:40 a.m. local time. The Singapore dollar was little changed at S$1.4615 against the U.S. currency.

The government forecasts the economy will shrink between 6 percent and 9 percent this year, the deepest contraction since its independence 44 years ago. Economists at Citigroup Inc., Goldman Sachs and DBS Group Holdings Ltd. are among those that have increased their Singapore economic estimates in recent weeks as manufacturing and export figures showed improvement.

Signs of recovery were also evident in other parts of the economy, Citigroup’s Kit Wei Zheng said.

“Re-stocking driven rebounds in technology, continued growth in construction spending, financial services and a revival in the private housing market contributed to the recovery in the broader economy,” he said.

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The U.S. trade deficit unexpectedly narrowed in May to the lowest level in almost a decade as exports jumped while imports of crude oil and auto parts declined.

The gap between imports and exports decreased 9.8 percent to $26 billion, the smallest deficit since November 1999, from a revised $28.8 billion in April that was lower than previously estimated, the Commerce Department said today in Washington. Imports fell while exports rose the most since July 2008.

A shrinking deficit signals trade will contribute more to U.S. gross domestic product as exports to emerging economies such as Brazil increase. Meanwhile, U.S. demand for imported auto parts was held down in May by production cutbacks and factory shutdowns by Detroit-based General Motors Corp. and Chrysler LLC, based in Auburn Hills, Michigan, two of the nation’s three largest automakers.

“Trade looks like it’s going to be a big plus for second quarter GDP,” said James O’Sullivan, a senior economist at UBS Securities LLC in Stamford, Connecticut. “It looks like the plunge in exports is over, which is of course consistent with the goal of the economy starting to stabilize after a dramatic collapse.”

The trade gap was projected to widen to $30 billion, from an initially reported $29.2 billion in April, according to the median forecast in a Bloomberg News survey of 71 economists. Deficit projections ranged from $34 billion to $25.5 billion.

Dollar Lower

The dollar remained lower against the yen after the report, trading at 92.24 yen per dollar at 9:11 a.m. in New York, compared with 92.99 late yesterday. The dollar was at $1.3902 per euro from $1.4020.

Exports rose 1.6 percent, the biggest increase since July 2008, to $123.3 billion, as sales of petroleum products, chemicals and industrial machinery increased. Exports this year have gotten a boost from aircraft manufacturers. Chicago-based Boeing Co., the world’s second biggest commercial-plane maker, said it got 20 orders in May, up from 17 in April.

Imports fell 0.6 percent to $149.3 billion after decreasing the prior month. The import figures were held down by a decline in purchases of foreign crude oil to $12.9 billion from $13.8 billion, reflecting lower demand for petroleum even as prices rose. The cost of imported oil averaged $51.21 a barrel, up from $46.60 in April, according to today’s report. Oil prices have been falling since June 11.

Import Prices

Prices of goods imported into the U.S. rose 3 business card.2 percent in June, the fourth monthly increase, as oil costs jumped by the most in a decade, a separate government report showed today.

Imports of industrial supplies, which include crude oil, fell by $656 million to $33.1 billion. Demand for consumer goods from abroad was little changed at $35.5 billion.

After eliminating the influence of prices the trade deficit narrowed to $36.2 billion from $40.1 billion. Those numbers are used to calculate gross domestic product.

The trade gap with China increased to $17.5 billion from $16.8 billion in the prior month. Deficits with Canada, Mexico and Japan shrank. The deficit with the European Union fell 48 percent to $2.8 billion as demand for European goods declined.

While symptomatic of global weakness, the narrowing of the trade gap prevented the U.S. economy from contracting even more last year. Trade contributed 1.4 percentage points to growth in 2008, the most since 1980.

The boost to U.S. growth from net exports continues this year. The economy shrank at a 5.5 percent annual rate in the first quarter, even as net exports made a positive contribution of 2.4 percentage points.

IMF Outlook

World trade this year may shrink 12 percent before growing 1 percent next year, the International Monetary Fund said this week in its latest global growth outlook. The world economy will shrink 1.4 percent this year and then recover next year with a 2.5 percent expansion, according to the forecast.

China, the second-largest U.S. trading partner after Canada, will grow 7.5 percent this year and, together with Brazil and other emerging economies, help bring an end to the global slump, the IMF said.

China will “actually be one of the motors of the world economy, replacing the U.S. consumer,” billionaire investor George Soros said this week in an interview with Bloomberg Radio.

Santa Clara, California-based National Semiconductor Corp., whose memory chips supply the top five mobile-phone manufacturers, said June 11 that stimulus spending in China has helped boost its sales.

“We’re benefiting from the buildup in China but we’re not counting on it to go on forever,” Chief Executive Officer Brian Halla said in a telephone interview. “Things have stabilized. I don’t think anyone in this industry is positive enough to say that we’ve recovered.”

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The U.S. economy will expand faster than previously forecast in the second half of this year and in 2010 as a revival in consumer spending signals an end to the recession, a Bloomberg News survey showed.

Growth will average 1.5 percent in the July-to-December period, compared with last month’s 1.2 percent projection, according to the median of 57 forecasts in the survey taken from July 2 to July 8. The jobless rate will exceed 10 percent early next year and average 9.8 percent for 2010.

Signs of stability in the housing market, improving consumer confidence and smaller declines in auto sales are reinforcing forecasts for gains in consumer purchases. While the recovery is likely to be tempered by job cuts and shrinking household wealth, most economists said a second stimulus package won’t be needed.

“We are on the cusp of stabilization,” said Stephen Stanley, chief economist at RBS Securities Inc. in Stamford, Connecticut. “The right things are happening. They’re not happening fast enough to make everyone comfortable just yet, but we’re certainly headed in the right direction.”

Federal Reserve officials will begin to lift the benchmark interest rate in the third quarter of next year and take it to 1 percent in the final three months, the survey showed. A month ago, economists said the Fed would hold the rate near zero until the fourth quarter of 2010.

The economy probably shrank at a 1.8 percent rate from April to June, the latest survey showed, less than economists forecast last month. The U.S. will return to growth in the current quarter and expand 2.1 percent next year.

Consumer Spending

Survey participants also raised their projections for consumer spending, which accounts for about 70 percent of the economy. Purchases will rise 1 percent this quarter after contracting in the prior three months, they said.

Growth in spending will accelerate to 1.8 percent by the first quarter of 2010.

“While the recession will be over soon, the recovery, at least in the first year, will be fairly lackluster,” said Nariman Behravesh, chief economist at IHS Global Insight in Lexington, Massachusetts. “For consumers, the biggest headwind is unemployment, and here, unfortunately, the news will get worse in the next few months.”

Unemployment will rise to 10.1 percent in the first quarter of 2010 from 9.5 percent last month, already the highest since August 1983, the survey showed. The U.S. has lost about 6.5 million jobs since the recession began in December 2007, the most of any downturn since World War II.

Retail Sales

Sales reports at retailers reflect caution among consumers, who are shifting purchases to discount stores.

June sales at stores open at least a year rose at Ross Stores Inc., the Pleasanton, California-based owner of the Ross Dress for Less discount chain, and Framingham, Massachusetts- based TJX Cos., owner of T.J. Maxx stores.

Same-store sales fell more than forecast for clothing retailers Abercrombie & Fitch Co., based in New Albany, Ohio, and Gap Inc., based in San Francisco.

Output at suppliers to automakers, meanwhile, may improve in coming months as General Motors Corp car loans., located in Detroit, and Auburn Hills, Michigan-based Chrysler Group LLC, two of the three biggest U.S. automakers, resume production at some plants. The two companies have shut down facilities as they restructure.

Klaus Kleinfeld, chief executive officer of New York-based Alcoa Inc., said he’s “very optimistic” about sales as China’s economy and the U.S. automotive industry start to recover.

‘Bottoming Out’

“Things are bottoming out, and they are even coming back in some sectors,” Kleinfeld said in a Bloomberg Television interview on July 7. “I’d mention the automotive sector” as one area of improvement, he said.

The Standard & Poor’s 500 Stock Index has gained 30 percent since March 9, when it hit 676.53, the lowest level in more than 12 years. The index closed at 882.68 yesterday in New York. The index has dropped 6.7 percent since June 12 on concern the rebound outpaced prospects for a recovery in the economy.

“I think the market got a little bit ahead of the economy,” Fed Bank of St. Louis President James Bullard said yesterday in a Bloomberg Television interview. “I do not think the recovery is faltering. If you look at the projections that were made in December of last year, we’re right on track.”

The Fed last month said it will let one of its emergency programs expire and trim two others, a sign that improving financial markets allow a first step toward ending its unprecedented interventions.

Stimulus Spending

President Barack Obama’s $787 billion stimulus package, which includes tax cuts and infrastructure spending, will push the federal budget deficit to 12.1 percent of gross domestic product this fiscal year, according to the survey, up from 12 percent in the June poll and the highest since monthly records began in 1968.

A program starting later this month to give American consumers cash to purchase new vehicles while trading in less- fuel-efficient older ones also may spur production and support growth, economists predict.

Of the 40 survey participants who answered a special question on the stimulus spending, 33 ruled out the need for a second package. Democrats who control Congress are divided over whether to push for more deficit spending, complicating the possibility of a second stimulus bill.

“The biggest impact of the stimulus is still to come in the second half of this year, so it’s a bit premature to talk of a second round,” IHS Global’s Behravesh said. Another dose would be “overdoing it” he said, adding, “where will the money come from?”

Mark Zandi, chief economist at Moody’s Economy.com in West Chester, Pennsylvania, said while “all the big negatives for the economy are becoming much less negative,” further stimulus spending may be required.

“I wouldn’t rule out the possibility that the economy may need more help next year,” he said.

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Australian employment fell in June, pushing the jobless rate to the highest in almost six years, as the global recession reduced demand for iron ore and coal exports and prompted mining companies to fire workers.

The number of people employed dropped 21,400 from May, the statistics bureau said in Sydney today. The median estimate of 21 economists surveyed by Bloomberg was for a decline of 20,000. The jobless rate rose to 5.8 percent from 5.7 percent.

Central bank Governor Glenn Stevens left borrowing costs at a half-century low of 3 percent this week for a third month to help stem firings at companies including BHP Billiton Ltd. Advertisements for job vacancies tumbled in June for a 14th month, a sign unemployment may rise in coming months.

“Full-time employment continues to fall so there is weakness there,” said Brian Redican, a senior economist at Macquarie Group Ltd. in Sydney. Still, the “rate of deterioration hasn’t increased as most people thought.”

The number of full-time jobs dropped 21,900 in June and part-time employment increased 400, today’s report showed.

The Australian dollar traded at 78.11 U.S. cents at 12:28 p.m. in Sydney from 78.04 cents before the report was released. The currency has jumped 8.5 percent in the past three months, making it the second-best performer against the U.S. dollar among the currencies of the major industrialized nations.

Consumer Confidence

Australia’s economy has so far skirted the worst global recession since the Great Depression. Gross domestic product rose 0.4 percent in the first quarter, making it one of the few major economies including China and India to expand.

Consumer confidence jumped to the highest level since December 2007 and home-loan approvals rose for an eighth month, reports showed yesterday.

“Leading indicators suggest we should be losing around 30,000 to 40,000 jobs per month, so the Reserve Bank would be happy with the recent performance of the labor market where trend losses are just 5,000 per month,” said Spiros Papadopoulos, an economist at National Australia Bank Ltd. in Melbourne.

To help boost employment and cushion the economy against slower global demand for natural resources, central bank policy makers slashed the overnight cash rate target by a record 4.25 percentage points to 3 percent between September and April.

Cash Handouts

Prime Minister Kevin Rudd’s government has also distributed A$12 billion ($9.4 billion) in cash handouts to households this year and is spending A$22 billion to upgrade roads, railways, hospitals and ports.

BHP Billiton, the world’s biggest mining company, is shedding 3,400 workers in Australia after shuttering a nickel mine in January and reducing coking coal output. Qantas Airways, the nation’s largest carrier, said in April that it will cut 1,750 jobs as demand for business and first-class travel wanes instant payday loans.

ANZ Bank said today it will scrap 248 jobs as it closes mortgage administration offices in cities including Sydney, Brisbane and Perth. The bank is Australia’s fourth largest.

“Weaker demand for labor is leading to lower growth in labor costs,” Reserve Bank Governor Glenn Stevens said on July 7. That gives policy makers “some scope for further easing of monetary policy, if needed,” he added.

Reports this month showed the construction industry shrank in June at a faster pace, exports slumped 5 percent in May from April and home-building approvals tumbled 12.5 percent, the biggest drop since November 2002.

Job Advertisements

Jobs advertisements dropped 6.7 percent last month from May and 51.4 percent from a year earlier, the largest annual decline since ANZ Bank began recording the figures in 1998.

Still, other reports suggest Australia’s economy will continue expanding this year. An index of consumer sentiment published yesterday by Westpac Banking Corp. climbed 23.2 percent in June and July, the largest two-month gain since the survey began in 1975.

The International Monetary Fund said the global economic rebound next year will be stronger than it forecast in April as the financial system stabilizes and the pace of contractions from the U.S. to Japan moderates.

The Washington-based lender said in a revised forecast released yesterday that the world economy will expand 2.5 percent in 2010, compared with its April projection of 1.9 percent growth.

Woolworths, Australia’s biggest retailer, has said it expects to add 7,000 workers and reaffirmed its forecast for an increase in annual profit of as much as 12 percent.

Rate Outlook

David Jones Ltd., Australia’s second-biggest department store chain, said last week that earnings after tax will rise by between 20 percent and 30 percent in the six months ending July 25. “The stimulus package has been good for confidence,” Chief Executive Officer Mark McInnes told reporters on June 30.

Investors expect Australia’s overnight cash rate target will be higher in 12 months, according to a Credit Suisse Group AG index based on swaps trading. Traders forecast the key interest rate will be 44 basis points higher in a year, the index showed at 12:22 p.m. in Sydney from 46 basis points just before the report was released and 48 basis points late yesterday.

The participation rate, which measures the labor force as a percentage of the population aged over 15, fell to 65.3 percent in June from a revised 65.4 percent, today’s report showed.

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The U.S. should consider drafting a second stimulus package focusing on infrastructure projects because the $787 billion approved in February was “a bit too small,” said Laura Tyson, an adviser to President Barack Obama.

The current plan “will have a positive effect, but the real economy is a sicker patient,” Tyson said in a speech in Singapore today. The package will have a more pronounced impact in the third and fourth quarters, she added, stressing that she was speaking for herself and not the administration.

Tyson’s comments contrast with remarks made two days ago by Vice President Joe Biden and fellow Obama adviser Austan Goolsbee, who said it was premature to discuss crafting another stimulus because the current measures have yet to fully take effect. The government is facing criticism that the first package was rolled out too slowly and failed to stop unemployment from soaring to the highest in almost 26 years.

Obama said last month that a second package isn’t needed yet, though he expects the jobless rate will exceed 10 percent this year. When Obama signed the first stimulus bill in February, his chief economic advisers forecast it would help hold the rate below 8 percent.

Unemployment increased to 9.5 percent in June, the highest since August 1983. The world’s largest economy has lost about 6.5 million jobs since December 2007.

Worse Than Forecast

“The economy is worse than we forecast on which the stimulus program was based,” Tyson, who is a member of Obama’s Economic Recovery Advisory board, told the Nomura Equity Forum. “We probably have already 2.5 million more job losses than anticipated.”

Republicans, including House Minority Leader John Boehner of Ohio, seized on the latest labor numbers to attack the Obama administration’s handling of the economy.

Even Democrats have bemoaned the pace of the package’s implementation. House Majority Leader Steny Hoyer, a Maryland Democrat, said on “Fox News Sunday” June 5 that congressional Democrats are “disappointed” stimulus funds weren’t distributed faster cash loans in 1 hour.

“The money is just really starting to come out in more significant amounts now,” Tyson said. “The stimulus is performing close to expectations but not in timing.”

Package Affordable

Tyson, 62, later told reporters that the U.S. can afford to pay for a second package, even as the fiscal deficit soars. She said the budget shortfall is “likely to be worse” than the equivalent of 12 percent of gross domestic product that the administration forecast for 2009 and the 8 percent to 9 percent it projected for next year.

The professor at the University of California’s Walter A. Haas School of Business downplayed worries from China and other countries with dollar reserves that the U.S. will let inflation soar as the deficit expands.

“The concern is that the U.S. will have to inflate away its debt. I do not think that is a valid concern,” she said. “The Federal Reserve is not going to let the U.S. government inflate away its debt.”

The U.S. needs to communicate its determination to reduce the annual shortfall once the economy recovers, she said.

While unemployment is worsening, other data have shown the economy is improving. U.S. manufacturing shrank last month at the slowest rate since August, according to the Institute for Supply Management’s factory index, and a measure of pending home sales advanced in May for a fourth month.

Tyson said the U.S. should shift away from its dependence on consumption to grow, and promote expansion through investment and exports. The dollar will need to weaken in the longer term to promote export-led growth, she said.

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Japan’s recovery from its worst postwar recession may lose momentum as companies cut investment and job losses undermine consumer spending.

The Bank of Japan’s quarterly Tankan report yesterday showed businesses plan deeper spending reductions than three months ago. Large companies estimate profit will fall 20 percent this year, almost twice the March forecast.

The pickup in demand has been slower than companies anticipated and firms are still burdened with factories and workers they no longer need, the Tankan showed. Fitch Ratings said yesterday it may take years for Toyota Motor Corp., Japan’s biggest company, to regain the level of profitability it achieved before the global financial crisis.

“Companies have started to realize that sales aren’t really going to come back,” said Hiroshi Shiraishi, an economist at BNP Paribas in Tokyo. “The situation is pretty bleak. Companies are faced with massive excesses in capacity.”

Demand from China hasn’t been enough to make up for crashing sales in the U.S. and Europe, where consumers are retrenching. At home, households are contending with pay cuts and the worst job prospects on record.

The Tankan index of sentiment among large makers of cars, electronics and other products rose to minus 48 in June from March’s record low of minus 58. The improvement was smaller than the 15-point advance analysts predicted, leaving pessimism on a par with that during the 1999 Asian financial crisis. A negative number means pessimists outnumber optimists.

Rejoice or Lament

“Do you rejoice about the improvement in sentiment or do you lament its low level? I think it’s the latter,” said Hiromichi Shirakawa, chief economist at Credit Suisse Group AG in Tokyo. “It could be two or three years before companies are using even three quarters of their production capacity.”

That’s putting pressure on managers to cut investment, jobs and wages payday loan online.

Toyota, which forecasts a second straight loss this year, plans to reduce spending 36 percent and trim pay for factory workers by 15 percent. Fitch yesterday cut the automaker’s credit rating by two notches, citing weak demand prospects.

“Most companies don’t feel demand for their finished products is really picking up,” said Shirakawa. “That means they don’t want to hire and they don’t want to invest.”

Big companies surveyed by the central bank said they plan to slash spending by 9.4 percent, more than the 6.6 percent drop they predicted in March and the worst projection in a June Tankan since comparable data were made available in 1983.

Falling Profits

Large manufacturers said they expect earnings to fall 39.5 percent in the year ending March. An index of excess workers stayed close to the worst in seven years. Economists expect the unemployment rate will surge to a record 5.8 percent in 2010 from the current 5.2 percent.

Still, the world’s second-largest economy probably grew for the first time in a year last quarter. Analysts predict gross domestic product rose at an annual 2.3 percent pace from a record 14.2 percent contraction in the first three months.

Some $2.2 trillion in stimulus plans worldwide has helped to prop up demand. At home, Prime Minister Taro Aso’s 25 trillion yen ($261 billion) in consumer incentives, job support and infrastructure spending since October spurred household confidence to a 14-month high in May.

“This recession had a very, very deep bottom,” said Tetsuro Sugiura, chief economist at Mizuho Securities Research Institute in Tokyo. “Even if the recovery doesn’t have that much traction, at least we’re not in freefall anymore.”

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