Japan is a mixed economic bag


Japan’s economy shrank again in the fourth quarter, the latest confirmation that Prime Minister Shinzo Abe’s growth program is sputtering.

The contraction, the fourth in seven quarters, comes at a crucial time for the prime minister’s economic policy program, known as “Abenomics,” and could lead to calls for further monetary and fiscal stimulus.

JapanAfter Mr. Abe took office in late 2012 declaring that “Japan is back,” economic growth has been intermittent and wage increases have been negligible. In addition, the primary gauge of inflation is languishing around zero.

In recent weeks, plummeting stock prices and a strengthening yen have threatened what progress has been made toward revitalizing the economy. A weaker currency and rising stocks are seen as keys to higher corporate profits and improving sentiment among businesses and consumers.

Gross domestic product contracted an annualised 1.4 % in the fourth quarter, according to data released Monday by the Cabinet Office, as consumer spending and exports declined. That was worse than a 1.2 % contraction forecast by economists surveyed by The Wall Street Journal.

For the full calendar year 2015, Japan’s economy expanded 0.4 %, as a 2.7 % increase in exports helped offset a 1.2 % drop in private consumption.

The fourth-quarter GDP figure might add to concerns about the global economy. Growth in the world’s two largest economies—the U.S. and China—slowed in the latest quarter. Stock markets across the world have tumbled in recent weeks as investors have fled riskier assets, fearing a China-led slowdown and fallout from collapsing commodity prices.

Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, said the “time has come for greater use of fiscal policy” to support growth world-wide, following years of extraordinary monetary stimulus by central banks.

Fiscal stimulus is one of the main pillars of Abenomics. However, after a sharp rise in spending in 2013, public demand weighed on economic growth both last year and in 2014, according to data released February 15, 2015.

The Bank of Japan, though, has applied full-bore quantitative easing through its JYN 80 trillion-a-year (USD 700 billion) asset-purchase program. Last month, the central bank took the extraordinary step of introducing negative interest rates.

The recent market turbulence has led to calls for further action by the BOJ and government.

The main cause of the slowdown in the fourth quarter was a decline in consumer spending, according to the government. Private consumption fell 3.8 % on an annualised basis. Unseasonably warm weather likely caused people to buy less winter clothing, while sluggish wage growth also kept pocketbooks closed.

Japan’s consumers have been tight fisted since a sales-tax increase in April 2014. Paychecks failed to keep pace. Including the effects of inflation, wages fell 0.9 % last year.

Exports unexpectedly fell during the latest quarter, by an annualized pace of 3.4 %. Slower sales of smartphones in China sapped demand for equipment in Taiwan and South Korea. Shipments of mining equipment to the U.S. also slumped as companies shelved shale-gas projects because of depressed oil prices.

Many economists expect growth to rebound in coming months, but largely for technical reasons. Japan’s economy is forecast to expand an annualised 1.4 % in the first quarter, according to a survey of 38 economists by the Japan Center for Economic Research. That would be the best growth in five quarters.

Global headwinds will present a challenge to growth this year. Any additional strength in the yen would hit corporate profits, likely causing businesses to pull back on spending plans. The currency’s recent rise has already dimmed hopes for significant wage increases to come out of recently initiated negotiations between big employers and unions.

Some business leaders have brushed off the recent market turbulence, though. Joji Tagawa, corporate vice president of Nissan Motor Co., told reporters last week that despite the currency swings, the carmaker was confident it could hit its full-year profit target.

“We believe that we shouldn’t be affected by each and every move of the financial markets. Our role is to support Abenomics and the policies of the central bank,” he said.


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