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18 August, 2015 00:00 00 AM
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Japan economy’s contraction a blow for ‘Abenomics’

AFP

AFP, TOKYO: Japan’s economy contracted last quarter, official data showed yesterday, 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 per cent in the three months to June—or 1.6 per cent on an annualised 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 per cent, or a 1.8 per cent annualised drop.
Private consumption, which accounts for about 60 per cent of Japan’s GDP, fell 0.8 per cent from the previous three months while exports dropped  4.4 per cent.
“The sharp plunge from the previous quarter’s surprise growth was partly due to disappointing demand for Japanese products in the US, 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 stronger-than-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 per cent expansion, sharply higher than an initial estimate of 0.6 per cent 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 anaemic growth and conquer years of deflation.
The programme 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.
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 per cent 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 ($640 billion) annual asset-buying scheme—a means to pump money into the economy similar to the US Federal Reserve’s quantitative 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 per cent in the fiscal year while inflation would come in at 0.7 per cent. That was down from an earlier estimate of 2.0 per cent and 0.8 per cent, 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 accompanied by a high enough wage increase,” economy minister Akira Amari told reporters Monday.
Despite a recovery in the US, a slowdown in neighbouring China—Asia’s top economy and a major market for Japanese exporters—has raised a
red flag.

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Editor : M. Shamsur Rahman

Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

Editor : M. Shamsur Rahman
Published by the Editor on behalf of Independent Publications Limited at Media Printers, 446/H, Tejgaon I/A, Dhaka-1215.
Editorial, News & Commercial Offices : Beximco Media Complex, 149-150 Tejgaon I/A, Dhaka-1208, Bangladesh. GPO Box No. 934, Dhaka-1000.

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