Weak Japan growth raises pressure on BoJ to boost demand
Sharp slowdown in second quarter suggests stimulus has been insufficient
6 HOURS AGO by: Kana Inagaki in Tokyo and Peter Wells in Hong Kong
Japan’s economy grew sharply less than expected in the second quarter, heaping more pressure on policymakers to encourage companies and households to increase spending.
Gross domestic product grew at an annualised rate of 0.2 per cent in the three months to June, according to preliminary data released on Monday, missing economists’ forecasts for 0.7 per cent growth and marking a sharp slowdown compared with a revised growth rate of 2.0 per cent in the first quarter.
On a quarter-on-quarter basis, the economy posted no growth during the three-month period — below expectations for a 0.2 per cent rise.
The weak data suggest a combination of monetary and fiscal stimulus under the prime minister’s Abenomics programme since the end of 2012 has not been sufficient to boost domestic demand.
Corporate profits have fallen sharply on the back of the export-denting rise in the yen, which accelerated following Britain’s June 24 vote to leave the EU. Paltry wage growth has failed to encourage households to loosen their purse strings.
“There is little expectation for consumption, capital spending and exports to grow going forward so it looks like the economy will remain at a standstill for the rest of the year,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
The start of the second quarter had been marred by concerns an earthquake that hit the southern island of Kyushu in April would disrupt supply chains and dent overall growth for the quarter. Giving economy watchers some hope, industrial production numbers remained robust in the wake of it.
This month Shinzo Abe unveiled a stimulus package of ¥28.1tn ($277bn), reverting to a loose fiscal policy. But it remains unclear how far it will boost the economy. Actual new government spending is only ¥6.2tn, of which just ¥4.6tn — 0.9 per cent of gross domestic product — will fall in the current fiscal year.
Pressure is likely to increase on the Bank of Japan to take further action at its next meeting in September. Investor expectations are also rising after Haruhiko Kuroda, BoJ governor, recently ordered a “comprehensive assessment” of the economy and the effectiveness of the central bank’s policy.
“In addition to the economic package, we will need to jointly carry out structural reforms,” Taro Aso, the finance minister, said after the data release, pointing to weak private consumption and exports.
Private consumption including household spending, which accounts for roughly 60 per cent of GDP, rose only 0.2 per cent compared with 0.7 per cent growth in the previous quarter.
Capital spending by businesses also declined for the second consecutive quarter, marking a 0.4 per cent drop. During the three-month period companies reported on average a 24 per cent decline in net profits as the yen rose 9 per cent against the US dollar and 12 per cent against the euro, according to SMBC Nikko Securities.
A slowdown in China and the stronger yen have also weakened Japan’s export engine, with June marking the ninth straight month of declines.