The world’s third-largest economy shrank 0.4 per cent in the three months to June – or 1.6 per cent on an annualised basis – due to weak consumer spending at home and slowing exports after two consecutive quarters of growth.
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The data looks likely to force the BOJ to cut its forecast of a 1.5 percent economic expansion for the current fiscal year when it reviews its long-term projections in October.
Private consumption, which accounts for about 60 percent of the Asian country’s GDP, fell 0.8 percent from the previous quarter while exports dropped 4.4 percent. But stagnant wage growth and corporate investment have so far slowed progress toward a strong, sustained cycle of growth.
But as more tepid second-quarter data started to roll in, some economists warned that Japan’s recovery was going to be wobbly, with an inventory build-up taking a toll on factory output.
The gloomy data adds to signs that Japan’s economy is at a standstill and heightens pressure on policymakers to offer additional monetary or fiscal stimulus later this year.
Consumption dropped for the first time in four quarters, reflecting the effects of poor weather and as consumers try to cope with last year’s sales-tax hike and pay that hasn’t kept pace with rising living costs.
The Bank of Japan, whose lavish monetary easing is pumping trillions of yen (hundreds of billions of dollars) of cash into the economy through purchases of government bonds and other assets, has persisted in forecasting a rebound later in the year.
Tokyo’s reform efforts, dubbed Abenomics, were kicked off in 2012 and were aimed at getting Japan’s economy out of deflation, and back in to growth. The central bank is well short of its 2% inflation target.
“The data will prompt calls for more policy action from the Bank of Japan”, Siu said in a note.
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The higher taxes hammered consumer spending and pushed the economy into a brief recession. “Private consumption was very weak, while exports also weakened, reflecting a slowdown in emerging economies, especially China”. Japan’s economy will grow 2% from July to September, according to the median estimate of economists.
