Japan economy shrinks in Q2 in setback for “Abenomics”

Japan's economy shrinks in April-June as exports slump and consumers cut back spending. (Courtesy Reuters/Photo grabbed from Reuters)
Japan’s economy shrinks in April-June as exports slump and consumers cut back spending. (Courtesy Reuters/Photo grabbed from Reuters)

(Reuters) — Japan’s economy shrank at an annualized pace of 1.6 percent in April-June, government data showed on Monday (August 17) as exports slumped and consumers cut back spending, a bad omen for Prime Minister Shinzo Abe’s policy drive to lift the economy out of decades of deflation.

China’s economic slowdown and its impact on its Asian neighbours have also heightened the chance that any rebound in growth in July-September will be modest, according to analysts.

The gloomy data adds to signs that Japan’s economy is at a standstill and may rekindle market expectations that the Bank of Japan will expand monetary stimulus later this year.

Economics Minister Akira Amari was optimistic that private consumption would pick up following improving income conditions.

“Income conditions continue to improve as a trend so private consumption is expected to recover gradually,” he said at a news conference after the figures were released.

But the weak second-quarter GDP data alone, however, was not going to trigger an immediate monetary easing, according to Amari.

“The government is not thinking about immediately putting together an extra stimulus measures at this moment,” he said.

The contraction in gross domestic product (GDP) compared with a median market forecast of a 1.9 percent fall and followed a revised expansion of 4.5 percent in the first quarter, Cabinet Office data showed on Monday.

Private consumption, which makes up roughly 60 percent of economic activity, fell 0.8 percent in April-June from the previous quarter, double the pace expected by analysts.

It was the first decline since April-June 2014, when an increase in the sales tax hike hit consumption, as households spent less on air conditioners, clothing and personal computers.

Overseas demand shaved 0.3 percentage point off growth as exports to Asia and the United States slumped.

The yen was unfazed by Monday’s data.

U.S. dollar was traded at 124.37 yen on Monday, capped by strong resistance in the 125-126 area.

The Nikkei share average gained 0.6 percent to 20,650.93 in midmorning trade on Monday after falling 0.9 percent last week.