Japan’s recession deeper than initially thought


The economy shrank an annualized real 1.9 percent in the third quarter, the government said Monday, reinforcing the view that the Japan slid into recession after April’s consumption tax hike.

The July-September contraction in real gross domestic product — the total value of goods and services produced — is deeper than the 1.6 percent figure in the preliminary report on Nov. 17 and follows the revised 6.7 percent GDP plunge logged in April-June, corresponding to a 0.5 percent quarter-on-quarter decline, the Cabinet Office said.

The third quarter saw domestic demand languish after the consumption tax hike to 8 percent on April 1, adding to concern over the outlook for the economy as Prime Minister Shinzo Abe pitches his deflation-busting policy mix dubbed “Abenomics” in his campaign for Sunday’s Lower House election.

But the administration still believes the economy is “on a moderate recovery track,” Deputy Chief Cabinet Secretary Hiroshige Seko told a news conference.

Corporate capital spending, which Abe’s Cabinet sees as the key to shoring up the economy, fell 0.4 percent from the previous quarter, revised from a 0.2 percent fall. Private consumption — accounting for roughly 60 percent of GDP — expanded only 0.4 percent, unchanged from the preliminary data.

Public investment grew 1.4 percent but was downgraded from the initially reported 2.2 percent rise.

Imports climbed 0.7 percent, less than with the previously reported 0.8 percent, while exports stayed unchanged at a 1.3 percent increase. Housing investment plunged 6.8 percent, compared with the previous 6.7 percent.

Economists said the new GDP data clearly show that the impact of the consumption tax hike on the economy has been non-negligible.

“With the second straight quarterly contraction of the economy, we have reconfirmed that the effect of a tax hike on the economy cannot be ignored when wages are not on a recovery track,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.

Looking ahead, however, the economists largely retained an optimistic view, projecting GDP growth in the October-December quarter.

Junichi Makino, chief economist at SMBC Nikko Securities Inc., said he expects the economy to “show a relatively strong rebound” in the fourth quarter on an expected recovery of private consumption and exports.

The Japan Center for Economic Research said last week that GDP is projected to expand by an annualized 3.3 percent in October-December and 2.2 percent in January-March 2015, citing the average projection of 42 private-sector economists.

Monday’s results came after Abe announced Nov. 18 that he was postponing another consumption tax hike to 10 percent by 18 months to April 2017, prompted by concern the second round of the two-stage tax hike would hurt the economy further.

Many analysts said the delay will help the economy grow, accelerate the administration’s efforts to beat deflation, promote growth and restore Japan’s fiscal health, which remains the worst among the major industrialized economies.

Last month, Abe dissolved the Lower House for a snap election, saying he will seek a fresh public verdict on Abenomics, his three-arrow policy which centers on aggressive monetary easing, fiscal stimulus and vows of growth-oriented reforms. All major political parties have expressed the view that delaying the second tax hike was inevitable to protect the economy.

  • itoshima2012

    Abenomics is one of the biggest smokescreens/big scams ever, when looking at the increased profits at big corporations it is only in Japanese Yen, in USD they’re flat, actually some even decreased. Plus, a cheap yen is not that big of a help to an economy that outsourced almost all of its manufacturing abroad. Same with the Nikkei, high in Yen, flat or even falling in other currencies. But it surely filled the pockets of the LDP cronies whereas for us normal mortals it couldn’t have gone worse. The LDP forces its way not realizing that times have changed, they keep on sinking the country underneath a mountain of debt that’s crushing generations to come, the Yen has lost 50% of its value against the USD and the EUR in a very short period (financially speaking) and normal people are having a very hard time. Also the biggest joke ever was the “deflation” scam, there was actually no “real deflation” in Japan, packaging got smaller and smaller, that’s why prices didn’t increase per item in the CPI basket, but they surely went to the roof by weight/content. Japan is at the forefront of what’s to come in many other developed nations, because the economy is saturated and because of changing demographics Japan needs a very different business model. Sadly the political elite is drunk by its desire to return/keep “playing in the big league” and will do whatever it takes even if it is clear that this is going to be this countries’ demise….
    This political class will just not accept a shrinking economy, a less important place in the world even if that would mean a happier and socially fairer society as a whole….

    • rossdorn

      Most of that is right, but there actually was deflation. At least some kind of it.
      Globalisation showed that japanese consumer prizes were outrages. Ten years ago when I came here, a 32″ Tv cost 100.000yen, which then was 1000 Euro. The identical TV in Europe cost 300 Euro (as it now does in Japan too), so naturally japanese prices in a globalised world would fall, and not just for TVs. Even japanese made computers were more expensive in Akihabara than in Paris.
      The old stupidiy brought you deflation, the present one maybe the total ruin….

      Japan is losing both the advantages and the disadvantages of being an island at the edge of the world. Sadly that lack of development also goes for politicians. It seems they simply cannot grasp the 21.century, and the mass of the people knows no better than to babble “Nihon ichiban”, and re-elects the idiots.
      On the other hand, who else is there to vote for…. the future looks bleak for Japan

  • Ken5745

    Japan deserves another lost decade if the people vote for Abe and his folly, Abenomics. When will the Japanese people learn that Abe’s policies will lead Japan over the fiscal cliff?

    • rossdorn

      Of course, at first thought, that is right.
      But then, who do suggest they vote for? Have you looked at the political parties this country offers?