Japan’s economy grew less than forecast in the three months through June 30 as business spending contracted for a second straight quarter.
Eleanor Warnock of The Wall Street Journal had the news:
Japan’s economy expanded an annualized 0.2% in the April-June quarter, compared with a 0.7% expansion forecast by 20 economists surveyed by The Wall Street Journal. The increase came after a 2.0% expansion in the first three months of the year.
The nearly flat growth showed that over three years after taking office pledging to end decades of sluggish growth, Prime MinisterShinzo Abe has struggled to engender a sustained recovery. Japan also faced headwinds in the quarter. In April, earthquakes caused extensive damage and disruptions to production in western Japan, and a stronger yen hit exporters by making Japan-made goods more expensive abroad.
Spending by businesses was weak. Capital expenditures fell 0.4% in the quarter, the second consecutive quarter of decline.
Household spending was also lackluster, rising only 0.1% on quarter, compared with a 0.7% increase in the first quarter. Consumer spending makes up roughly 60% of gross domestic product. Economists say consumers have held back on spending because many haven’t received significant pay increases, despite record earnings at many large Japanese companies in recent years.
“Overall it looks like the economy is stagnating. Consumer spending is weak, and the reason is low wage gains. There is a lot of uncertainty about overseas economies, and this is holding back capital expenditure,” said Norio Miyagawa, senior economist at Mizuho Securities.
“The government has already announced a big stimulus package, so the next question is how the Bank of Japan will respond after its comprehensive policy review, which is sure to lead to a delay in its price target.”
On a quarter-on-quarter basis, gross domestic product marked flat growth in April-June, weaker than a median market forecast for a 0.2 percent rise.
Private consumption, which accounts for roughly 60 percent of GDP, rose 0.2 percent in April-June, matching a median market forecast but slowing from a 0.7 percent increase in the previous quarter.
Connor Cislo of Bloomberg News reported that business spending slumped:
Policy makers are struggling to find a strategy to produce consistent growth, with the economy oscillating between slight expansion and contraction. Businesses and consumers have been reluctant to spend, resulting in negative GDP numbers in five quarters over the past three years. The data keeps pressure on the Bank of Japan to consider more monetary stimulus at its September meeting while increasing the need for the government to tackle structural obstacles to growth.
Economist Takeaways
- Corporate investment has declined for two consecutive quarters, the first time since the sales-tax hike in 2014, said Betty Rui Wang, an economist at Standard Chartered Bank in Hong Kong. “GDP signals, especially for the business sector, that there is big downside risk”
- She also noted that the report doesn’t fully reflect the U.K.’s June 23 Brexit vote.
- “The strong yen’s continued since the beginning of the year and I think a wait-and-see posture may have spread when it comes to business investment,” said Masaki Kuwahara, an economist at Nomura Securities in Tokyo.
