The Japanese economy contracted in the final three months of last year, as the nation struggled to break free of a cycle of expansion and contraction despite more than three years of the Abenomics program.
GDP shrank an annualized 1.4 percent in the three months ended Dec. 31, following a revised 1.3 percent gain in the previous quarter, Japan’s Cabinet Office said yesterday. The median estimate of 33 economists surveyed by Bloomberg News was for a 0.8 percent decline.
Weak private consumption was the biggest contributor to the contraction last quarter, undermining Japanese Prime Minister Shinzo Abe’s policies to spur inflation and growth in the world’s third-largest economy. Since then, the yen appreciated 5.6 percent against the US dollar, hurting exporters and eroding some of the benefits of record monetary stimulus.
Photo: EPA
“Consumption was weak, even after taking out seasonal factors, as households tightened their purse strings,” Tokyo-based Meiji Yasuda Life Insurance Co chief economist Yuichi Kodama said. “The downside risks to Japan’s economy are likely to increase as the yen’s gains may damp capital spending and exports, and private consumption also is looking weak. There’s no clear driver to support Japan’s economy.”
The yen retreated 0.6 percent to 113.96 per US dollar in Tokyo, while the TOPIX rallied 8 percent. The share market surge followed a jump in US equities on Friday, signs that shares had been oversold, and expectations that the poor GDP number would increase pressure on the central bank to boost monetary stimulus.
Investors sometimes have been led astray by GDP data in Japan. Initial GDP data showed Japan falling into a recession in quarter ended Sept. 30 before being revised to show an expansion.
The economy’s performance has see-sawed over the past three years since Abe returned as prime minister, even as Bank of Japan (BOJ) Governor Haruhiko Kuroda has ratcheted up monetary easing in concert with government efforts to spur higher wages, consumer spending and investment. Everything from household spending to industrial production and exports tumbled in December.
All this was before the rout in global markets this year. Since then, the BOJ has added to its stimulus by introducing negative rates out of concern that market volatility and China’s slowdown have increased the risks of a delay in changing Japan’s “deflationary mindset.”
A lack of growth in wages is a big reason for the weak trend in Japan, said Taro Saito, director of economic research at the NLI Research Institute in Tokyo.
Total wages in Japan have not risen more than 1 percent in any year since 1997 and they fell for the past four years once inflation is accounted for.
“There’s a high chance that the BOJ may take additional easing at the next meeting in March,” Masamichi Adachi, an economist at JPMorgan Chase & Co and a former central bank official, said before the GDP data release. “The downside risks to the BOJ’s outlook on growth and inflation are increasing.”
Yesterday’s report showed that:
Business spending increased 1.4 percent last quarter from the previous three months.
Private consumption dropped 0.8 percent last quarter.
Private inventories subtracted 0.1 percentage point from last quarter’s GDP.
Net exports, or shipments less imports, added 0.1 percentage point to GDP.
Economists have raised their estimates of the likelihood that Japan could fall into another recession in the next 12 months to the highest level since the end of 2012, according to a separate survey of economists conducted from Jan. 29 to Feb. 3.
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