Japan’s Economy Shrinks, In More Bad News From Asia

Japan economy

Japan’s economy shrank by 1.6 percent in the second quarter thanks to a weakening export market and reduced consumer spending, in news that follows a tumultuous week in China.

The numbers do not bode well for Japan’s prime minister, Shinzo Abe. His economic policy, branded “Abenomics,” has sought to raise his country’s fortunes after years of debilitating deflation. That strategy has included increased government spending and quantitative easing since Abe was elected in 2012.

But Monday’s announcement of the sagging economy could prove a stiff challenge to Abenomics just as the prime minister finds himself under fire at home for restarting nuclear reactors and taking a slightly less apologetic tone in public comments around Japan’s role in World War II.

While the fall in gross domestic product was a bit smaller than expected, private consumption decreased by worse-than-expected 0.8 percent. That’s a big deal because private consumption accounts for almost two-thirds of Japan’s economic activity and hasn’t fallen since the second quarter of 2014.

And Japanese exports had their worst showing in four years, down 4.4 percent from the first quarter.

Japanese Economics Minister Akira Amari tried to put a positive spin on the numbers, pointing to weather as one of many short-term factors that inhibited growth this quarter but shouldn’t prove long-term drags on the economy. In a statement, he said that “income conditions continue to improve as a trent so private consumption is expected to recover gradually.”

But analysts aren’t so sure.

“There was nothing good in today’s GDP data,” economist Hideo Kumano of the Dai-ichi Life Research Institute told Bloomberg.

A poor third quarter could also push the Bank of Japan to further ease its monetary policy, already loose thanks to Abenomics.

Japan’s economy has continued to face headwinds after struggling for years to regain its footing. Last year, consumption dipped after a sales tax increase went into affect. Monday’s disappointing GDP figures come after two quarters of growth, but the economic turmoil in China, Japan’s largest trading partner, could make for a rough third quarter as well.

Written by Gene Giannotta

Gene Giannotta is a writer based in Washington, D.C. He reports on economic policy, finance and business news.