Japan’s Economy Contracts as Consumption, Investment DeclineToru Fujioka
Japan’s economy contracted last quarter as consumers and businesses cut spending and exports tumbled, putting pressure on the prime minister to return his focus to Abenomics.
Gross domestic product fell an annualized 1.6 percent from January-March, ending two quarters of growth, the Cabinet Office said on Monday. The median estimate in a Bloomberg survey was for a 1.8 percent drop.
The slump in private-sector demand came as exports to the U.S., Asia, and Europe fell, undercutting a support for the world’s third-biggest economy. Economy Minister Akira Amari said he doesn’t expect to add fiscal stimulus and Bank of Japan chief Haruhiko Kuroda is counting on weakness to fade this quarter as he chases a distant 2 percent inflation target with unprecedented monetary stimulus.
“There was nothing good in today’s GDP data,” said Hideo Kumano, an economist at Dai-ichi Life Research Institute and a former BOJ official. “Private consumption was very weak, while exports also weakened, reflecting a slowdown in emerging economies, especially China.”
The slump is a setback for Shinzo Abe, whose support has suffered as he’s championed unpopular defense bills and the restart of nuclear reactors. Abe made reviving the economy a priority when he took office in December 2012, advocating reflationary policies that weakened the yen and spurred corporate profits.
The yen fell after the data and was down 0.1 percent at 124.37 per dollar at 11:03 a.m. in Tokyo.
Abe’s efforts to increase long-term growth prospects -- the “third arrow” of his Abenomics program -- have “slowed to a crawl,” say economists Marcel Thieliant and Mark Williams at Capital Economics.
Consumption dropped for the first time in four quarters, reflecting the effects of poor weather and as consumers try to cope with last year’s sales-tax hike and pay that hasn’t kept pace with rising living costs. Exports fell 4.4 percent from previous quarter, the steepest decline since 2011.
The prospect of additional monetary easing by the central bank as soon as October may hinge on whether the slump deepens in the July-September period, said Kumano.
“If momentum in exports and consumption remains weak, the government will have no choice but to discuss stimulus measures,” said Masayuki Kichikawa, an economist at Bank of America Corp.
The economy has been flashing warnings that the weakness could persist. Consumer confidence fell in July to the lowest in six months. Inventories climbed to the highest since 2009 in June, pressuring manufacturers to curtail production.
The stumble comes as China -- Japan’s biggest trading partner -- is fighting off its own slowdown, with a currency devaluation last week that triggered convulsions in global markets and adds to challenges for Japanese officials in reflating the economy.
Sumitomo Metal Mining Co., Japan’s biggest nickel producer, this month cut its profit forecast as slower Chinese demand weakens commodity prices.
Abe faces a party leadership election next month amid declining public support. More people disapproved his cabinet than approved in July, for the first time since his premiership in 2012, according to public broadcaster NHK.
Governor Kuroda said last month he didn’t think Japan’s slowdown would continue from July, and earlier this month said recent weakness in industrial production and exports would be temporary.
Japan “need not worry” about China’s currency devaluation of the yuan because it can always offset the effects by easing monetary policy, said Koichi Hamada, an adviser to Abe.
Economists surveyed before Monday’s data didn’t foresee a strong bounce. Japan’s economy will grow 2 percent from July to September, according to the median estimate of economists.
“Government and BOJ officials are likely to emphasize growth rates should be averaged out,”said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute. “Even so, economic data show that it’s getting difficult to say Japan is recovering now.”
(An earlier version of this story corrected a reference to Abe’s ratings in 10th paragraph.)