Tue, Aug 18, 2015 - Page 15 News List

Japanese economy shrank 1.6% in Q2

FISCAL STIMULUS:The Japanese government is under pressure to introduce policy that might kick-start a declining economy as consumer spending and exports slow

Reuters, TOKYO

Pedestrians are reflected on an electronic board showing a graph of Japan’s Nikkei average outside a brokerage yesterday in Tokyo.

Photo: Reuters

Japan’s economy shrank at an annualized pace of 1.6 percent in the April-June period as exports slumped and consumers cut back spending, adding pressure on Prime Minister Shinzo Abe to step up his policy drive to lift the economy out of decades of deflation.

China’s economic slowdown and its impact on its Asian neighbors has also heightened the chance that any rebound in growth in the July-September period is likely to be modest, analysts say.

The gloomy figure adds to signs that Japan’s economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year. The contraction in GDP compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed yesterday.

“If weak private consumption persists, that would be a further blow to Abe’s administration, which is facing falling support rates ahead of next year’s Upper House election,” Credit Suisse chief Japan economist Hiromichi Shirakawa said.

“This could raise chances of additional fiscal stimulus,” Shirakawa said.

Private consumption, which makes up roughly 60 percent of economic activity, fell 0.8 percent from the previous quarter, double the pace expected by analysts. It was the first decline since April-June last year, when a sales tax hike hit consumption, as households spent less on air conditioners, clothing and personal computers. Overseas demand shaved 0.3 percentage point off growth as exports to Asia and the US slumped.

The data looks likely to force the Bank of Japan to cut its forecast of a 1.5 percent economic expansion for the current fiscal year when it reviews its long-term projections in October, but the weak consumption underscores a dilemma the central bank faces that might discourage it to expand stimulus.

Japanese Minister of State for Economic Revitalization Akira Amari acknowledged that consumption may have been hit by rising food prices, as the Bank of Japan’s easing weakened the yen and pushed up import costs.

Aides close to Abe have signaled that additional monetary easing is unwelcome as further yen falls could push food costs up further and hurt consumption. That puts the onus of the government to underpin growth despite diminishing returns.

Japan’s economy grew just 2 percent since Abe took office in December 2012, even as he deployed fiscal stimulus roughly equal to 3 percent of GDP.

“The effect of Abenomics hasn’t expired, but the policy steps haven’t boosted wages enough to meet rising living costs,” Barclays Capital Japan economist Yuichiro Nagai said.

“There’s not much the Bank of Japan can do, so there’s a higher chance the government may offer fiscal support if consumption fails to rebound in July-September,” he said.

Amari told reporters the government did not have any plans as yet to craft a fresh stimulus package and is to instead keep pressuring companies to direct their record profits at raising wages and capital expenditure, but weak Asian demand casts doubt on whether manufacturers can continue to reap huge profits overseas.

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