Ja­pan’s eco­nomic growth fiz­zles out

The Myanmar Times - - International Business -

JA­PAN’S econ­omy stalled in the April-June quar­ter, data showed yes­ter­day, miss­ing mar­ket fore­casts and rekindling wor­ries about the gov­ern­ment’s fal­ter­ing bid to stoke a re­cov­ery.

Growth in the world’s third-largest econ­omy was flat at 0.0 per­cent on-quar­ter, fall­ing be­low econ­o­mists’ ex­pec­ta­tions for a mod­est 0.2pc ex­pan­sion, as weak ex­ports and a fall in busi­ness spend­ing dented ac­tiv­ity.

On an an­nu­alised ba­sis, the econ­omy ex­panded by a slight 0.2pc in the lat­est pe­riod, well off ex­pec­ta­tions for a 0.7pc rise and a 1.9pc growth rate seen in the first quar­ter of the year.

Ja­panese of­fi­cials are un­der grow­ing pres­sure to de­liver as econ­o­mists in­creas­ingly write off Prime Min­is­ter Shinzo Abe’s years-long bid to ce­ment a last­ing re­cov­ery.

“The data is quite dis­ap­point­ing,” said Junko Nish­ioka, chief econ­o­mist at Su­mit­omo Mit­sui Bank­ing.

“The sit­u­a­tion is be­com­ing tougher and tougher. There is the rally in the yen and wor­ries about Ja­pan’s prospects in over­seas mar­kets. And so com­pa­nies are be­com­ing more pes­simistic about mak­ing in­vest­ments.”

In­fla­tion dropped for a fourth straight month in June, de­liv­er­ing a fresh blow to the war on de­fla­tion.

Busi­ness con­fi­dence has slumped to lev­els last seen when he swept to power in late 2012 on a ticket to fire up an econ­omy be­set by years of fall­ing prices and weak growth.

Tokyo re­cently an­nounced a whop­ping 28 tril­lion yen (US$276 bil­lion) pack­age aimed at kick­start­ing growth, after Bri­tain’s June vote to quit the Euro­pean Union sent fi­nan­cial mar­kets into a tail­spin and sparked a yen rally.

The sec­ond quar­ter drop in busi­ness spend­ing comes as the strong yen threat­ens cor­po­rate Ja­pan’s bot­tom line – ag­gra­vat­ing broader con­cerns about growth.

In­vestors tend to buy Ja­pan’s cur­rency as a safe bet in times of tur­moil or un­cer­tainty. But it makes its ex­porters less com­pet­i­tive over­seas and hits prof­its at Ja­pan Inc. The prob­lem was high­lighted re­cently as many of the county’s best­known firms, in­clud­ing Sony and Toy­ota, re­ported lower prof­its in the three months to June.

Mr Abe’s plan – a mix of mas­sive mon­e­tary eas­ing, gov­ern­ment spend­ing and red-tape slash­ing – ini­tially brought the yen down from record highs and set off a stock mar­ket rally.

But prom­ises to cut through red tape have been slower, and Mr Abe’s plan to buoy Ja­pan’s once-boom­ing econ­omy have looked in­creas­ingly un­re­al­is­tic.

His spend-for-growth poli­cies have set Ja­pan apart from some of its rich coun­ter­parts, in­clud­ing Ger­many which has been re­luc­tant to en­dorse them, see­ing it as an in­ef­fec­tive way to stim­u­late the econ­omy.

Mr Abe reshuf­fled his cab­i­net in early Au­gust after eas­ily win­ning up­per house elec­tions, and vowed to speed up his bat­tle with de­fla­tion.

The Bank of Ja­pan’s mas­sive mon­e­tary eas­ing cam­paign is a cor­ner­stone of plans to boost prices.

The cen­tral bank dis­ap­pointed mar­kets at its late July meet­ing when it opted to leave its 80 tril­lion yen an­nual bond-buy­ing pro­gram un­changed, amid wor­ries that ex­pand­ing the scheme could spark vo­latil­ity in Ja­pan’s debt mar­kets.

The BoJ also held off cut­ting in­ter­est rates deeper into neg­a­tive ter­ri­tory.

Neg­a­tive rates are meant to en­cour­age lend­ing to peo­ple and busi­nesses by ef­fec­tively charg­ing banks to keep ex­cess re­serves in the BoJ’s vaults.

But com­mer­cial banks have com­plained they are eat­ing into their fi­nan­cial results.

Ja­pan’s growth data are likely to heap pres­sure on the BoJ to act when it meets next month, an­a­lysts said.

“Ja­pan’s econ­omy stag­nated in the sec­ond quar­ter,” said Mar­cel Thieliant from re­search house Cap­i­tal Eco­nom­ics.

“Adding in the de­fla­tion­ary im­pact of the stronger yen, un­der­ly­ing in­fla­tion should moder­ate fur­ther in com­ing months, in­creas­ing the pres­sure on the BoJ to pro­vide more mon­e­tary eas­ing.”

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