TOKYO – Japan’s economy stagnated in the second quarter, data showed Monday, falling below expectations and rekindling worries about the government’s faltering bid to stoke a recovery, AFP reports.
Growth in the world’s third largest economy was flat at 0.0 percent quarter-on-quarter, missing economists’ predictions for a 0.2 percent expansion in the April-June period as weak exports and a fall in business spending held back activity.
On an annualised basis, the economy expanded by a slight 0.2 percent, well off expectations for 0.7 percent growth. The economy grew 0.5 percent in the first quarter — 1.9 percent annualised –after a contraction in the last three months of 2015.
Monday’s weak figures come as Japanese officials face growing pressure to deliver and economists increasingly write off Prime Minister Shinzo Abe’s stumbling efforts to drive a recovery, dubbed Abenomics. Recent government figures have done little to soothe those worries.
Inflation dropped for a fourth straight month in June, delivering a fresh blow to Abe’s war on deflation. Business confidence has slumped to levels last seen when Abe swept to power in late 2012 on a ticket to fire up an economy beset by years of falling prices and weak growth.
Japan’s government recently announced a whopping 28 trillion yen ($276 billion) package aimed at kickstarting growth. The fiscal package, which included infrastructure spending and efforts to raise the birthrate, was the latest in a series in recent years.
The second quarter drop in business spending comes as a sharp rally in the yen threatens corporate Japan’s bottom line — aggravating concerns about growth. Investors tend to buy Japan’s currency as a safe bet in times of turmoil or uncertainty.
But it makes its exporters less competitive overseas and hits profits at Japan Inc. The problem was highlighted recently as many of the county’s best-known firms,including Sony and Toyota, reported lower profits in the three months to June.
– Spend-for-growth –
Abe’s plan — a mix of massive monetary easing, government spending and red-tape slashing — initially brought the yen down from record highs and set off a stock market rally. But promises to cut through red tape have been slower, and Abe’s plan to buoy Japan’s once-booming economy have looked increasingly unrealistic.
Japan’s spend-for-growth policies have set it apart from some of its rich nation counterparts, including Germany which has been reluctant to endorse them,seeing it as an ineffective way to stimulate the economy. Abe reshuffled his cabinet in early August after easily winning upper house elections, and vowed to speed up his battle with deflation.
Key to that war is the Bank of Japan’s massive monetary easing campaign, a cornerstone of Abenomics. The central bank disappointed markets at its late July meeting when it opted to leave its 80 trillion yen annual bond-buying programme unchanged, amid worries that expanding the scheme could spark volatility in Japan’s debt markets.
The BoJ also held off cutting interest rates deeper into negative territory,after banks hit back against the plan first announced in January. Negative rates are meant to encourage lending to people and businesses by effectively charging banks to keep excess reserves in the BoJ’s vaults.
But lenders have complained they are eating into their financial results. The latest GDP results are likely to heap pressure on the BoJ to act when it meets next month, analysts said. “Japan’s economy stagnated in the second quarter,” said Marcel Thieliant from research house Capital Economics.
“Adding in the deflationary impact of the stronger yen, underlying inflation should moderate further in coming months, increasing the pressure on the BoJ to provide more monetary easing.”