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Japan plunges into recession, in defeat for Abe’s growth efforts

Bloomberg, Kyodo

The economy contracted in the third quarter on sluggish business investment, confirming what many economists had predicted: The nation fell into its second recession since Prime Minister Shinzo Abe took office in December 2012.

Gross domestic product declined an annualized 0.8 percent in the three months ended Sept. 30, following a revised 0.7 drop in the second quarter, the Cabinet Office said Monday. Economists had estimated a 0.2 percent decline for the third quarter.

Concerns about a Chinese-led slowdown apparently weighed on consumption, which accounts for around 60 percent of Japan’s GDP, and capital spending, raising the bar for Abe’s government to stimulate demand and steer the economy toward growth.

After a 0.6 percent fall in the previous quarter, private consumption gained only moderately by a real 0.5 percent on the back of increased sales of air conditioners due to hot summer weather and leisure-related spending over a long holiday weekend in the fall.

The government is urging companies to increase capital spending and raise wages for employees, as many Japanese companies have benefited from the yen’s weakness and reaped record profits.

Corporate capital spending, which the government sees as a key to shoring up the economy, slid 1.3 percent for the second straight quarterly decline as firms maintained a cautious stance amid a slowdown in emerging economies including China.

Economic and fiscal policy minister Akira Amari expressed confidence that the Japanese economy remained on a recovery trend despite some risks in overseas economies.

“The problem is that capital spending is not robust, which indicates that the mindset of company executives remains deflationary,” Amari told a news conference.

The focus is expected to shift to the crafting of an extra budget at the end of the year, aimed at helping farmers boost global competitiveness and finance social security measures.

“Japan’s economy is in a soft patch, and even though it may rebound in the coming months, the momentum will probably be very weak,” Atsushi Takeda, an economist at Itochu Corp. in Tokyo, said before the report. “The government will probably have no choice but to take action to stimulate the economy, and pressure for additional monetary easing will likely build up again.”

“Japan’s economy was weak, led by weakness in China,” said Daiju Aoki, an economist at UBS Group AG. in Tokyo. “Companies are still wondering whether the economy is resilient enough to increase investment, so domestic demand wasn’t strong enough to offset the weakness from abroad.”

Evidence of another recession since he took office — the earlier one was in 2014, after the first stage of the consumption tax hike — is not good news for Abe, who has made bolstering the economy a priority and pushed radical reflationary policies that weakened the yen and boosted corporate profits.

In a string of somber economic reports in the past few months, the Bank of Japan’s preferred core price gauge fell, household spending unexpectedly dropped, vehicle production declined, retail sales slipped and imports fell while exports stagnated. One bright spot: Industrial output advanced 1.1 percent in September from the previous month, yet was not enough to make up for contractions in July and August.

“Business spending will be unlikely to pick up soon,” Itochu’s Takeda said. “Japanese companies are holding off spending as there’s still uncertainties over global demand resulting from China’s slowdown.”

Abe has told Amari to compile measures this month to help achieve his goal of expanding Japan’s nominal GDP by 20 percent to ¥600 trillion over five years.

Amari said Friday that he is not assuming an extra budget will be to fund measures purely focused on boosting growth at the moment, and the funding may be used to help address Japan’s demographic issues and to help alleviate the effects of the Trans-Pacific Partnership trade pact, which is expected to hurt Japan’s farmers.

  • disqus_vBekJrf7g5

    So, let me get this straight; Abenomics still isn’t working, and the only idea the J-gov has got is to double-down on the policies that have failed?
    Lucky for Abe he is out of the country.

    • R0ninX3ph

      I’m not sure Abe cares anyway, he is out as LDP President at the end of this term whether Abenomics works or fails.

      • disqus_vBekJrf7g5

        I can only live in hope.

    • R0ninX3ph

      I’m not sure Abe cares anyway, he is out as LDP President at the end of this term whether Abenomics works or fails.

  • disqus_vBekJrf7g5

    So, let me get this straight; Abenomics still isn’t working, and the only idea the J-gov has got is to double-down on the policies that have failed?
    Lucky for Abe he is out of the country.

  • tiger

    Japan needs a ‘pivot to Asia’. First please sort out the history issues and then let’s talk business!

  • tiger

    Let the fleecing begin.

  • tiger

    Let the fleecing begin.

  • TV Monitor

    It is time Japanese voters realized they elected a wrong leader to power, revolt, and put DPJ back in power.

    • Tachomanx

      When the DPJ failed even more and started the current row with China over the Senkaku?
      The current trend is natural given China’s crash-landing and do not forget the first trimester saw Japan grow almost 4% so these negatives of less than 1% are expected as at the end of the year net growth is projected.

      Finally, revolt? Civilized democratic nations don’t do that anymore.
      Plus, have you seen the mess your beloved DPJ is right now? It might dissappear in the coming months.

      • thedudeabidez

        “When the DPJ failed even more and started the current row with China over ”

        I believe you’re referring to Ishihara Shintaro, who was not a DPJ member.

      • TV Monitor

        Tachomanx

        The Diaoyu confrontation was started by Ishihara, who tried to buy out the islands and turned them into a tourist destination. Noda only nationalized them to keep the islands uninhibited and off limit to Japanese civilians.

        Finally, revolt? Civilized democratic nations don’t do that anymore.

        Japan is not a democracy. All true democracies went through a revolution phase, so Japan’s revolution has yet to come. Only after a revolution do citizens cherish the rights they have and aren’t afraid to stand up to dictators like Abe Shinzo.

      • Tachomanx

        Yes, but as you have said, the government could have blocked the sale right? In any case, how it managed the issue wasn’t exactly it’s greatest selling point.

        Japan is a democracy and it shows on it’s great number of political parties (Largely irrelevant I grant but that´s their own doing really)
        As per your definition then, Korea went through a dictatorship that ended without the need of a revolution so what? Korea isn’t a democracy then?
        Korea’s president is the daughter of a dictator and an imperial army officer who even adopted a japanese name. How come she is better than Abe who also have a troubling ancestor?
        There is also many nations were democracy was installed without the need for a revolution.
        In any case, Abe is leaving office in 2018 as per party rules and leaving the position to a democratically elected successor of any political spectrum the japanese vote in power.
        You in turn should pray that Japan’s other political parties get their act together and end their internal squabbles as the japanese vote for whoever have ideas on how to tackle the country’s problems and the last security reform debate showed that no opposition party had any new ideas on that or anything.

  • Liars N. Fools

    Abe has hoped that China would falter, but the slowdown affects Japan much more so than America. So playing the anti-China card in partnership with us has helped bring about the current recession.

    • CaptainAsia

      So lets conveniently ignore the fact that China is directly manipulating its markets with the government owned enterprises buying and selling fake data to prop up their fake markets, when the next crash comes around in China it is going to be big. Why do you think their leader is on a begging trip around the world?

      • disqus_vBekJrf7g5

        Swap ‘China’ for ‘Japan’ and you got it.

      • disqus_vBekJrf7g5

        Swap ‘China’ for ‘Japan’ and you got it.

      • disqus_vBekJrf7g5

        Swap ‘China’ for ‘Japan’ and you got it.

  • Karagarga

    “plunges into recession…” Plunging is what you do with a plunger or at the diving board. “The plane plunged to earth,” etc. This number? It’s just that, normal.

  • CaptainAsia

    Ebbs and flows are natural, even in the man made economies of the world. As long as you are a nation of hard working innovative people, as Japan is, then there will be rises. Not much to worry about, when you have nations like China lying through their teeth about how their economy is doing, not to mention the direct meddling by their govt in their markets.

    • disqus_vBekJrf7g5

      Blah, blah, blah China (again) blah, blah blah.

  • thedudeabidez

    The LDP continues to behave like in irredeemable alcoholic who’s been told that he has cirrhosis of the liver, but every time he sees the blinking, flashing lights of the beer machine, he just can’t resist having a few more. They know how bad the deficit has gotten, hell, they increased the consumption tax to pay for it while wringing their hands and moaning “shikata ga nai” but as soon as do they get that new tax money in the coffers, than they just have to compile another “extra budget to spend it all on interests connected to their party.

    This will be the third supplemental budget in a row now, the first two of which already ate up five years’ worth of increased consumption tax revenue I have yet to see a report on Abenomics that actually looks into the numbers and relies on something other than official platitudes.