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.
Photo: Reuters
“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.
ISSUES: Gogoro has been struggling with ballooning losses and was recently embroiled in alleged subsidy fraud, using Chinese-made components instead of locally made parts Gogoro Inc (睿能創意), the nation’s biggest electric scooter maker, yesterday said that its chairman and CEO Horace Luke (陸學森) has resigned amid chronic losses and probes into the company’s alleged involvement in subsidy fraud. The board of directors nominated Reuntex Group (潤泰集團) general counsel Tamon Tseng (曾夢達) as the company’s new chairman, Gogoro said in a statement. Ruentex is Gogoro’s biggest stakeholder. Gogoro Taiwan general manager Henry Chiang (姜家煒) is to serve as acting CEO during the interim period, the statement said. Luke’s departure came as a bombshell yesterday. As a company founder, he has played a key role in pushing for the
China has claimed a breakthrough in developing homegrown chipmaking equipment, an important step in overcoming US sanctions designed to thwart Beijing’s semiconductor goals. State-linked organizations are advised to use a new laser-based immersion lithography machine with a resolution of 65 nanometers or better, the Chinese Ministry of Industry and Information Technology (MIIT) said in an announcement this month. Although the note does not specify the supplier, the spec marks a significant step up from the previous most advanced indigenous equipment — developed by Shanghai Micro Electronics Equipment Group Co (SMEE, 上海微電子) — which stood at about 90 nanometers. MIIT’s claimed advances last
CROSS-STRAIT TENSIONS: The US company could switch orders from TSMC to alternative suppliers, but that would lower chip quality, CEO Jensen Huang said Nvidia Corp CEO Jensen Huang (黃仁勳), whose products have become the hottest commodity in the technology world, on Wednesday said that the scramble for a limited amount of supply has frustrated some customers and raised tensions. “The demand on it is so great, and everyone wants to be first and everyone wants to be most,” he told the audience at a Goldman Sachs Group Inc technology conference in San Francisco. “We probably have more emotional customers today. Deservedly so. It’s tense. We’re trying to do the best we can.” Huang’s company is experiencing strong demand for its latest generation of chips, called
GLOBAL ECONOMY: Policymakers have a choice of a small 25 basis-point cut or a bold cut of 50 basis points, which would help the labor market, but might reignite inflation The US Federal Reserve is gearing up to announce its first interest rate cut in more than four years on Wednesday, with policymakers expected to debate how big a move to make less than two months before the US presidential election. Senior officials at the US central bank including Fed Chairman Jerome Powell have in recent weeks indicated that a rate cut is coming this month, as inflation eases toward the bank’s long-term target of two percent, and the labor market continues to cool. The Fed, which has a dual mandate from the US Congress to act independently to ensure