Japan suffers another economic contraction amid sluggish spending

The Japanese economy shrank at an annual rate of 1.1 per cent in the October-to-December quarter amid slumping personal consumption for the second contraction in three quarters, the government said Tuesday.

The reading was above the 1.5-per-cent contraction predicted in a poll of economists by the Nikkei business daily and revised up from an initial estimate of 1.4-per-cent contraction, the Cabinet Office said.

Corporate investment grew 1.5 per cent quarter-on-quarter, revised up from a preliminary reading of a 1.4-per-cent rise, while consumer spending, which accounts for about 60 per cent of gross domestic product (GDP), declined 0.9 per cent, steeper than February's estimate of a 0.8-per-cent fall, the office said.

Exports fell 0.8 per cent for the first contraction in two quarters amid slow growth in China, revised slightly from a preliminary reading of a 0.9-per-cent decrease, while imports were down 1.4 per cent unchanged from an initial estimate, the office said.

Public spending was revised downwards to a 3.4-per-cent fall from a preliminary estimate of 2.7-per-cent contraction, the office added.

"Japan's economic fundamentals are good because we have seen improvements in corporate earnings and employment conditions," Economy Minister Nobuteru Ishihara told a news conference. "There is no change to our view" that the Japanese economy is on a moderate recovery trend.

Despite his words, government reports released last week showed otherwise. The country’s inflation-adjusted monthly wages and household spending fell from a year earlier for the fifth consecutive month in January.

Household spending dropped 3.1 per cent from a year earlier in January, while monthly wages slipped 1.3 per cent, the government said.

Consumer spending has been especially weak since Tokyo raised a sales tax to 8 per cent in April 2014 from 5 per cent for the first hike in 17 years.

Prime Minister Shinzo Abe, who took office in December 2012, vowed to jump-start the world’s third-largest economy and combat years of deflation with a package of economic policies dubbed Abenomics.

In April 2013, the Bank of Japan introduced aggressive monetary easing measures in order to achieve a 2-per-cent inflation target within two years.

In January, the bank pushed back its goal to achieve the target to the first half of fiscal 2017 from the second half of fiscal 2016 amid falling global energy prices.

The bank also cut its economic growth outlook for the current financial year through March 31. It expects the economy to expand 1.1 per cent, compared with 1.2 per cent forecast in October.

In its latest attempt to spur growth and inflation, the bank decided to adopt negative interest rates, which means it imposes a 0.1-per-cent fee on some deposits.

As Abe's economic policies have failed to achieve long-term economic growth, there has been growing speculation that the premier would be forced to postpone the planned tax hike in April 2017 to 10 per cent from the current 8 per cent.

"We'll decide politically after considering both positive and negative" impacts of the tax increase, Finance Minister Taro Aso told a news conference Tuesday.

Last update: Tue, 08/03/2016 - 11:42
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