Japan’s economy shrinks as consumption, investment fall


Japan’s economy contracted last quarter as consumers and businesses cut spending, putting pressure on Prime Minister Shinzo Abe to return his focus to his economic policies, dubbed “Abenomics.”

Gross domestic product fell an annualized 1.6 percent from January-March, ending two quarters of growth, the Cabinet Office said Monday. The median estimate in a Bloomberg survey was for a 1.8 percent drop.

The slump in the world’s third-biggest economy is a setback for Abe, whose support has suffered as he has championed unpopular defense bills and the restart of nuclear reactors. Bank of Japan Gov. Haruhiko Kuroda is counting on weakness to fade this quarter as he chases an elusive 2 percent inflation target with unprecedented monetary stimulus.

“A contraction would cause huge damage to Abe’s popularity,” Kazuhiko Ogata, an economist at Credit Agricole SA, said before the report. “Abe has had support because he’d improved the economy. It’s possible that he compiles an economic package.”

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. His effort 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.

Monday’s data underscore weakness in private-sector demand, with consumers struggling to cope with last year’s sales-tax hike and pay that has not kept pace with rising living costs.

The economy is 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 of his Cabinet than approved in July, for the first time since his premiership in 2012, according to public broadcaster NHK.

Kuroda said last month he does not think Japan’s slowdown will continue from July, and earlier this month said recent weakness in industrial production and exports will 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 did not foresee a strong bounce. The 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.”

  • keratomileusis

    The only parties benefitting from cheap abundant cash are the wealthy and corporations. Japan likes to think of itself as special, and in many ways it is, but it is the USA’s lapdog. I’m just surprised it took so long for Japan to get involved in financial malfeasance à la Wall Street.

    Smart phones are not “smart” so stop looking at them Japan 24/7, and start looking around. Why don’t you enjoy the scenery instead of taking a picture of it?

    Does anyone else notice that the price of rice has dropped as the TPP nears completion? What threat does cheap imported rice pose for Japanese culture and society? Easier to play video games I suppose…

  • Liars N. Fools

    This is what he should have consistently focused on. He was elected to fix Japan. Not to pursue revisionism. Not to expand Japan’s role as a military instrumentality of the Americans. It is a strong prosperous Japan that is the ultimate smart power for Japan.


  • zer0_0zor0

    The only substance to so-called Abenomics was reversing Noda’s disastrous policies on the Yen.

    Abe represents a corrupt Japanese executive branch that is in cahoots with Obama’s militaristic and corrupt American executive branch. They only serve the interests of the “Investor class”, while putting on a pretentious show of serving the interests of The People when the do so.

    Abe has totally followed his American CIA coaches lead in playing on the national security theme, and the promulgation of the State Secrets Law has yet been shown as the pernicious it act it was. One of the main objectives, of course, was to hide from The People the collusion between the corrupt American and Japanese executive branches aimed at dragging Japan into America’s military adventurism.

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  • The Disturbed One

    Unless the underlying aim of the Government is to depopulate Japan and reduce the count of people to Australian levels, the way to improve the economy is –

    1. Improve disposable income

    This alone will improve the economy through increased spending.

    More people will get married.

    More married couples will have children once they feel that they can afford to have them.

    2. Improve child care facilities

    This will help mothers with young children have a chance to contribute productively to the economy.

    3. Better working conditions for women

    At least 1 to 1.5 years paid maternity leave like in the Nordic countries.

    4. Increase opportunities for families to have children

    See point 1.

    5. Make it easier for foreign companies to set up shop and employ people here

    The Japanese banking cabal may be responsible for Citibank’s exit.

    Prevent stuff like that happening.

  • Doubting Thomas

    This is what happens you increase the effective income tax rate on the working class. The increased consumption tax was a non-issue for the wealthy, because they spend a very small portion of their income. But every time you increase excise taxes, you significantly increase the effective rate for the consumer class, who are the ones who drive the economy. Less money to spend = less money spent = less economic growth.

  • Al_Martinez

    I wonder just what kind of basket case the Japanese economy will be come Tokyo Olympics time. And to what the degree the Olympics will be an added drag on the economy. I picture a bad situation–we’ll see.