Gross domestic product fell by an annualized 1.6% in the three months ended June, Japan’s Cabinet Office said Monday.
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Despite the contraction in the second quarter, there was some good news in revisions to earlier data, as growth in the first three months of the year was revised up from 1pc to 1.1pc.
On a quarter-on-quarter basis, GDP contracted 0.4 percent in April-June, versus a 0.5 percent contraction expected by economists.
An inventory buildup at Japanese firms was taking a toll on industrial production, analysts had warned. The Nikkei 225 index opened up around 0.3 percent.
The slump in private-sector demand came as exports to the US, Asia, and Europe fell, undercutting a support for the world’s third-biggest economy. Japan’s economy grew just 2 per cent since Abe took office in December 2012, even as he deployed fiscal stimulus roughly equal to 3 per cent of GDP.
Japan’s economy contracted last quarter as consumers and businesses cut spending, putting pressure on Prime Minister Shinzo Abe to return his focus to his economic policies, dubbed “Abenomics”.
BoJ chief Haruhiko Kuroda has pushed back a timeline for hitting a 2.0 per cent inflation target, a cornerstone of Abenomics, although he insists healthy price rises are around the corner.
The latest figures could spur calls for a government stimulus package toward the end of the year, though economists expect growth to pick up in the second half.
“If momentum in exports and consumption remains weak, the government will have no choice but to discuss stimulus measures”, said Masayuki Kichikawa, an economist at Bank of America Corp.
The higher taxes hammered consumer spending and pushed the economy into a brief recession.
Sumitomo Metal Mining Co., Japan’s biggest nickel producer, this month cut its profit forecast as slower Chinese demand weakens commodity prices.
While he said that the U.S. economy was recovering and he didn’t see much reason to be anxious on that front, he added that he was watching how China responded to its slowing economy, Reuters reported.
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China’s central bank devalued the yuan last week, sparking concern the economy is growing more slowly than thought and prompting fears it could start a currency war in which countries compete to boost exports by cutting the value of their units.
