BY Fraser Tennant
Second-quarter GDP figures have confirmed that the Japanese economy, the world’s third-largest, shrank at an annualised pace of 1.6 percent – a contraction that keeps up the pressure on prime minister Shinzo Abe and his economic policy package, Abenomics.
According to data released this week by the Cabinet Office, on a quarter-on-quarter basis, Japan’s gross domestic product contracted 0.4 percent in the April to June 2015 period. Economists surveyed by The Wall Street Journal forecast a 0.5 percent contraction (1.9 percent annualised).
Despite the weak economic growth, the Japanese economy actually expanded over the previous two quarters, although that expansion followed two quarters of contraction.
A slump in overseas demand for Japanese goods and more frugal attitudes toward household expenditure have been cited as the major reasons for the stagnating Japanese economy.
As well as essentially confirming that its economy is at standstill, the austere Japanese GDP data also steps up the pressure on senior policymakers to devise a fresh monetary/fiscal stimulus to bolster the economy and reverse decades of deflation.
Since taking office in December 2012, prime minister Abe has struggled to bolster economic growth, with his audacious Abenomics revival program so far failing to turn the Japanese economy around.
Commenting on the Cabinet Office figures, economics minister Akira Amari stated that the government did not have any concrete plans as yet to introduce a new stimulus package but would concentrate for the moment on pressuring companies to direct their profits toward raising wages and capital expenditure.
Responding to Mr Amari’s view, Hiromichi Shirakawa, chief Japan economist at Credit Suisse, said: “If weak private consumption persists, that would be a further blow to Abe's administration, which is facing falling support rates ahead of next year's Upper House election. This could raise chances of additional fiscal stimulus."
Although economists do expect economic growth to pick up in Japan in the second half of 2015, for now there is considerable pressure mounting on prime minister Abe and his government to take steps to boost the economy, sooner rather than later.