Japan’s Economic Roller Coaster Is Headed for Another Dip

Japan Proves Negative Rates Not Workable: Hans Redeker
  • Seesaw cycle continues even with Abenomics, monetary stimulus
  • Economists expect data to show decline in fourth-quarter GDP

After three years of Abenomics and record monetary stimulus from the central bank, Japan’s economy still can’t escape a roller-coaster cycle of expansion and contraction.

QuickTake Abenomics

The next round will commence on Feb. 15, when gross domestic product data for the fourth quarter are released. The forecast is pessimistic: that Japan’s economy shrank 0.8 percent on an annualized basis in the last three months of 2015, according to the median estimate of economists who responded to a Bloomberg survey. Revised data showed the GDP rose 1 percent in the third quarter.

“The GDP report will show Japan’s economy is in a very dire situation,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “There is no driving force for the economy and that’s unlikely to stop this quarter.” Shinke, who ranked as the top Japan forecaster for the latest Bloomberg GDP survey, predicts a big contraction of 3 percent in the fourth quarter.

The economy’s performance has zigzagged over the past three years, since Bank of Japan Governor Haruhiko Kuroda and Prime Minister Shinzo Abe ramped up their stimulus programs in a bid to end decades of deflation and spur higher wages, consumer spending and investment. Since 2013, Japan’s economy has grown in seven quarters and contracted in four; if the forecasts prove accurate, the last quarter of 2015 will be the fifth of a shrinking economy in three years.

The up-and-down figures underscore the uneven progress Kuroda and Abe have made in spurring growth. A batch of data released last month showed Japan’s economy ended 2015 with a bust, as everything from household spending to industrial production and exports tumbled in December. That weakening came before this year’s global market rout amid concerns about China’s slowdown, which the BOJ said increases risks of a delay in changing Japan’s “deflationary mindset.”

Another issue complicating efforts to boost the economy is that investors sometimes have been led astray by government data in Japan. For example, initial gross domestic product data showed Japan falling into a recession in the third quarter of 2015, which pushed down stocks and the yen on the news. Three weeks later, revised data showed the economy actually grew 1 percent in the quarter, meaning announcements of another recession were premature.

BOJ Moves

The BOJ continues trying to ward off weakness in the economy, with Kuroda on Jan. 29 adopting a negative interest-rate strategy to spur banks to lend more. JPMorgan Chase & Co. said there is a chance for the central bank to bolster stimulus at its next meeting in March if the yen strengthens and inflation expectations fall, Masaaki Kanno, the chief Japan economist, wrote in a report on Monday.

Japan’s Topix index posted its biggest weekly loss since 2008 while the yen headed for its biggest two-week gain versus the dollar since 1998 during the Asian financial crisis.

“GDP data swings but it’s clear Japan’s economy is struggling to pick up the pace,” said Masamichi Adachi, a senior economist at JPMorgan. “What’s worse is the recent market turmoil is making it increasingly likely that economic conditions will stay lackluster this quarter.”

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 between Jan. 29 and Feb. 3.

Companies in Japan are worried that the economy’s current ride is headed in the wrong direction. Panasonic Corp. cut its profit forecast for the year ending in March as sales of air conditioners and devices fell in China, the company said Feb. 3. Hitachi Ltd. slashed its full-year profit forecast as the slowdown in China hurt sales of construction machinery and low oil prices reduced demand from oil-producing nations.

“It’s very regrettable,” Toyoaki Nakamura, chief financial officer at Hitachi, told reporters as the company reported its earning projections.

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