Japan’s economy barely grew in the second quarter, revised data showed yesterday, further calling into question Prime Minister Shinzo Abe’s big-spending easy-money policy drive.
While the figures were a slight improvement on the zero expansion in earlier estimates – owing to an upward revision in capital spending and public investment – they were still well below the previous three months’ figures.
And analysts were cool on the prospects for future growth in the world’s number-three economy.
“It’s getting better but the economy is lacking a growth engine and overall the outlook is pretty bleak,” said Kohei Iwahara, a Japan economist at French bank Natixis.
“There may be some growth in the third quarter but nothing exciting – I’m not optimistic.”
Japanese leaders have struggled to get a strong handle on the economy, which contracted in the last three months of 2015, before bouncing back in January-March with a 0.5% rise on-quarter and 2.1% annualised.
It expanded 0.2 % on-quarter in April-June and 0.7% on an annualised basis.
The unsteady trend is putting pressure on Japanese officials to deliver as economists increasingly write off Abe’s more than three-year attempt to cement a lasting recovery, dubbed Abenomics.
Tokyo recently announced a whopping ¥28tn ($275bn) package aimed at kick-starting growth, after Britain’s June vote to quit the European Union sent financial markets into a tailspin and sparked a rally in the yen, which is hurting corporate profits.
“Japan’s economy is only managing this weak, fragile growth,” Yasunari Ueno, chief market economist at Mizuho Securities, said in a commentary.
“Exports are unlikely to be the engine of recovery. With corporate profits set to decline this year, it’s tough to see wage growth spurring consumer spending or firms stepping up their own investments.”
“Another rise in the yen could tip the economy into a recession.”
Investors tend to buy Japan’s currency as a safe bet in times of turmoil or uncertainty. But it makes exporters less competitive overseas and hits their profits.
The problem was highlighted recently as many of the county’s best-known firms, including Sony and Toyota, reported lower profits in the three months to June.
Japan’s latest figures will throw the spotlight on the central bank, which meets later this month, as markets try to guess if it will launch more economic stimulus.
Bank of Japan policymakers disappointed at its late July meeting when they opted to leave a record ¥80tn annual bond-buying programme unchanged, worrying that expanding the scheme could spark volatility in debt markets.
At a Tokyo seminar this week, BoJ governor Haruhiko Kuroda left the door open for more stimulus and waved off talk of scaling back on its easing policy when the bank holds its next policy meeting from September 20.
But he stopped short of signalling the policy board’s intentions, leaving investors guessing.
Abenomics – a mix of massive monetary easing, government spending and red-tape slashing – initially brought the yen down from record highs and set off a stock market rally.
But promises to cut through red tape have been slower, and Abe’s vision of resuscitating Japan’s once-booming economy has looked increasingly unrealistic. His spend-for-growth policies have set Japan apart from some of its rich nation counterparts, including Germany, which has been reluctant to endorse them, seeing it as an ineffective way to stimulate growth.