Second recession hits Japan under Abenomics

We thought Abenomics was supposed to help the Japanese economy grow, not shrink.

Japan on Monday reported that its economy contracted in the quarter ended Sept. 30, pushing the nation into its second recession since Prime Minister Shinzo Abe took office in December 2012 and its fourth technical recession in five years.

Shinzo Abe

Shinzo Abe

A recession is defined as two quarters in which the economy contracts. With third-quarter gross domestic product declining at an annualized 0.8% after it contracted 0.7% in the second quarter, it makes it officially a recession.

Economists blamed weak business investment as companies cut back on spending and production in the face of slow growth in China and a weak global outlook.

According to Japan’s Cabinet Office inventories subtracted 0.5 percentage point from growth this quarter as companies reduced stocks and business investment subtracted 0.2 percentage point from growth.

“Abenomics’ first two arrows of monetary and fiscal stimulus were meant to buy time, but Japan failed to make progress with painful reforms needed to boost its growth potential,” Hiroshi Shiraishi, senior economist at BNP Paribas Securities, told Reuters. “Without reform (the ‘third arrow’), the economy’s growth potential remains low, making it vulnerable to shocks and to suffering recessions more often.”

Reuters reported that Economics Minister Akira Amarim said at a news conference after the data was published, that a shortage of labor available for public works projects to stimulate the third-largest economy, highlighting a major constraint policymakers face – not enough suitable workers to build growth.

Pundits expect growth to resume in the current quarter, but Monday’s report could put pressure on Abe and Bank of Japan Governor Haruhiko Kuroda to boost fiscal and monetary stimulus, said Bloomberg. The Bank of Japan meets later this week.

“This report shows the increasing risk that Japan’s economy will continue its lackluster performance,” Atsushi Takeda, an economist at Itochu Corp. in Tokyo told Bloomberg. “The weakness in capital spending is becoming a bigger concern. Even though their plans are solid, companies aren’t confident about the resilience of economy at home and abroad.

In short the business community’s reduced investment was a body blow to Abe’s plans. He had been encouraging Japanese company to put more resources into capital spending. From the second to third quarters, business investment fell 1.3%



Categories: Asia Unhedged, Japan

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