Ja­pan's econ­omy con­tracts in April-June quar­ter

The Pak Banker - - BUSINESS -

Ja­pan's re­cov­ery stalled in the April-June quar­ter, with the world's third-largest econ­omy con­tract­ing at a 1.6 per­cent an­nual pace thanks to fee­ble con­sumer and cor­po­rate de­mand and slow­ing ex­ports.

The dis­mal data re­ported Mon­day was ex­pected, based on ear­lier re­ported fig­ures, but it raises the like­li­hood the cen­tral bank may opt for fresh stim­u­lus mea­sures in com­ing months. It also comes at an awk­ward time for Prime Min­is­ter Shinzo Abe, who has cham­pi­oned a strat­egy of heavy mon­e­tary stim­u­lus to help push prices higher and drive a "vir­tu­ous cy­cle" of stronger con­sumer spend­ing and cor­po­rate in­vest­ment. Abe has seen his pop­u­lar­ity rat­ings slip fol­low­ing dam- ag­ing leg­isla­tive skir­mishes over his pro­pos­als to ex­pand the role of Ja­pan's self-de­fense force and could use some pos­i­tive news on the eco­nomic side. But heavy rains in the spring and early sum­mer are thought to have dis­cour­aged shop­pers. De­mand for autos has also slumped fol­low­ing a tax hike for smaller cars. As China's econ­omy has slowed, its de­mand for ex­ports has also lagged.

Econ­omy min­is­ter Akira Amari, how­ever, ac­knowl­edged in­ad­e­quate progress to­ward get­ting com­pa­nies to use their surg­ing cor­po­rate prof­its to raise wages and do­mes­tic in­vest­ment - a pri­or­ity seen as vi­tal to a sus­tain­able re­cov­ery.

"Im­prov­ing pri­vate con­sump­tion is cru­cial," he said. Amari shot down spec­u­la­tion that Ja­pan was plan­ning fur­ther stim­u­lus to spur growth. "We have no such in­ten­tion," he said.

The gov­ern­ment did re­vise up­ward its es­ti­mate for growth in the Jan­uary-March quar­ter, to 4.5 per­cent from 3.9 per­cent. The con­trac­tion in April-June rep­re­sented a 0.4 per­cent quar­terly de­crease. The Bank of Ja­pan, whose lav­ish mon­e­tary eas­ing is pump­ing tril­lions of yen (hun­dreds of bil­lions of dol­lars) of cash into the econ­omy through pur­chases of gov­ern­ment bonds and other as­sets, has per­sisted in fore­cast­ing a re­bound later in the year.

Lower oil prices have hin­dered progress to­ward achiev­ing the of­fi­cial in­fla­tion tar­get of 2 per­cent, and the con­trac­tion will likely raise ques­tions over whether the Abe­nomics ap­proach is work­ing, said Fung Siu, an an­a­lyst at the Economist In­tel­li­gence Unit. "The data will prompt calls for more pol­icy ac­tion from the Bank of Ja­pan," Siu said in a note. The data re­leased Mon­day show that pri­vate con­sump­tion, the big­gest driver of growth, fell 1.7 per­cent in an­nual terms de­spite an 8 per­cent in­crease in residential in­vest­ment. Cor­po­rate in­vest­ment slipped 0.3 per­cent.

Ex­ports fell 16.5 per­cent from a year ear­lier, the worst quar­terly per­for­mance in four years, with net ex­ports mi­nus im­ports down nearly 10 per­cent. The econ­omy got a boost from public in­vest­ment, which rose al­most 11 per­cent from a year ear­lier, as spend­ing was "front-loaded" at the be­gin­ning of the fis­cal year, which starts April 1.

Ja­panese com­pa­nies re­ported an av­er­age in­crease in net profit of 42 per­cent in the April-June quar­ter from a year ear­lier. But cor­po­ra­tions have gen­er­ally opted to spend ris­ing prof­its on in­vest­ments over­seas, rather than in Ja­pan or on in­creas­ing wages.

Wages fell 2.9 per­cent in June from a year ear­lier, ac­cord­ing to fig­ures re­leased last week. While hourly wages have in­creased slightly, com­pa­nies tend to hire part-time or con­tract work­ers to fill any gaps. "While the num­ber of jobs is al­most back to pre-re­ces­sion lev­els, the to­tal num­ber of hours of work for all work­ers com­bined has been flat at 5 per­cent be­low the pre-re­ces­sion level ever since 2009," Richard Katz of the Ori­en­tal Economist wrote in an anal­y­sis last week.

Newspapers in English

Newspapers from Pakistan

© PressReader. All rights reserved.