Ja­pan econ­omy’s con­trac­tion a blow for ‘Abe­nomics’


Ja­pan’s econ­omy con­tracted last quar­ter, of­fi­cial data showed Mon­day, boost­ing spec­u­la­tion the cen­tral bank will be forced to un­leash more stim­u­lus as Tokyo’s “Abe­nomics” growth blitz stum­bles.

The world’s third-largest econ­omy shrank 0.4 per­cent in the three months to June — or 1.6 per­cent on an an­nu­al­ized ba­sis — due to weak con­sumer spend­ing at home and slow­ing ex­ports af­ter two con­sec­u­tive quar­ters of growth.

Still, the fig­ures pub­lished by the Cab­i­net Of­fice came in slightly bet­ter than mar­ket ex­pec­ta­tions for a fall of 0.5 per­cent, or a 1.8 per­cent an­nu­al­ized drop.

Pri­vate con­sump­tion, which ac­counts for about 60 per­cent of Ja­pan’s GDP, fell 0.8 per­cent from the pre­vi­ous three months while ex­ports dropped 4.4 per­cent.

“The sharp plunge from the pre­vi­ous quar­ter’s sur­prise growth was partly due to dis­ap­point­ing de­mand for Ja­panese prod­ucts in the U.S., Chi­nese and other” mar­kets, SMBC Nikko Se­cu­ri­ties said in a com­men­tary.

“Slug­gish wage growth and bad weather drove down con­sump­tion at home,” it added.

The down­turn fol­lows strongerthan-ex­pected growth in the first quar­ter due to a pickup in cap­i­tal spend­ing, with Ja­panese firms gen­er­ally re­port­ing up­beat prof­its.

Ja­pan on Mon­day re­vised up its read­ing for the Jan­uary-March pe­riod for the sec­ond time to a 1.1 per­cent ex­pan­sion, sharply higher than an ini­tial es­ti­mate of 0.6 per­cent growth.

“Cor­po­rate earn­ings are strong — lead­ing in­di­ca­tors show up­ward move­ment for both ma­chin­ery and con­struc­tion in­vest­ment,” said Credit Suisse economist Hiromichi Shi­rakawa.

But as more tepid sec­ond-quar­ter data started to roll in, some econ­o­mists warned that Ja­pan’s re­cov­ery was go­ing to be wob­bly, with an in­ven­tory buildup tak­ing a toll on fac­tory out­put.

The slow­down comes more than two years af­ter Prime Min­is­ter Shinzo Abe launched a pol­icy blitz, dubbed Abe­nomics, to kick­start ane­mic growth and con­quer years of de­fla­tion.

The pro­gram called for big gov­ern­ment spend­ing, mas­sive Bank of Ja­pan (BOJ) mon­e­tary eas­ing and re­forms to cut red tape in Ja­pan’s highly reg­u­lated econ­omy — re­forms that have now stalled, how­ever.

Main­land China Slow­down

House­hold spend­ing has also been un­steady fol­low­ing a sales tax rise last year, brought in to pay down a mas­sive na­tional debt, which saw con­sumers rush to stores be­fore prices rose.

BOJ chief Haruhiko Kuroda has pushed back a timeline for hit­ting a 2.0 per­cent in­fla­tion tar­get, a corner­stone of Abe­nomics, although he in­sists healthy price rises are around the cor­ner.

This month, Kuroda said he would con­sider ex­pand­ing the bank’s record 80 tril­lion yen (US$640 bil­lion) an­nual as­set-buy­ing scheme — a means to pump money into the econ­omy sim­i­lar to the U.S. Fed­eral Re­serve’s quanti- tative eas­ing — if weak oil prices keep hold­ing back near-zero in­fla­tion.

“The slump in out­put last quar­ter should be fol­lowed by a tepid re­cov­ery in the sec­ond half of the year,” said Mar­cel Thieliant from Cap­i­tal Eco­nom­ics.

“We re­main con­vinced that the Bank of Ja­pan will an­nounce more eas­ing in Oc­to­ber.”

In July, Ja­pan’s cen­tral bank cut its an­nual growth and in­fla­tion fore­casts for the fis­cal year to March 2016.

The BOJ now ex­pects Ja­pan’s econ­omy to ex­pand 1.7 per­cent in the fis­cal year while in­fla­tion would come in at 0.7 per­cent. That was down from an ear­lier es­ti­mate of 2.0 per­cent and 0.8 per­cent, re­spec­tively.

While some big firms have raised wages and un­em­ploy­ment re­mains low, con­vinc­ing peo­ple to splash out on con­sumer goods has been a strug­gle since last year’s levy rise.

The in­crease ham­mered spend­ing and pushed the econ­omy into a brief re­ces­sion last year.

“Per­haps peo­ple are feel­ing that the price rises have not been ac- com­panied by a high enough wage in­crease,” econ­omy min­is­ter Akira Amari told re­porters Mon­day.

De­spite a re­cov­ery in the U.S., a slow­down in neigh­bor­ing main­land China — Asia’s top econ­omy and a ma­jor mar­ket for Ja­panese ex­porters — has raised a red flag.

Main­land China’s cen­tral bank de­val­ued the yuan last week, spark­ing con­cern the econ­omy is grow­ing more slowly than thought and prompt­ing fears it could start a cur­rency war in which coun­tries com­pete to boost ex­ports by cut­ting the value of their units.


(Above) Cargo is loaded onto a truck at a port in Tokyo, Mon­day, Aug. 17.

(Right) Chart show­ing Ja­pan’s quar­terly GDP.

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