Japan’s economy contracted at a 1.4 percent annual pace in the last quarter as weak consumer demand and slower exports battered the recovery.
The preliminary data, which may be revised, were slightly worse than expected and were a setback from the 1.3 percent expansion in the previous quarter. The economy shrank 0.4 percent in October-December from the previous quarter.
Despite the lackluster report, Tokyo’s main share index, the Nikkei 225, jumped 4.4 percent to 15,615.84 in early trading Monday, helped by a weakening in the Japanese yen.
The latest contraction, the second in 2015, adds to worries that Prime Minister Shinzo Abe’s strategy for reviving the economy through inflation fueled by massive monetary easing is not delivering as promised. The slowdown in China, one of Japan’s biggest export markets, has been a further hindrance.
Japan’s central bank has already resorted to imposing negative interest rates on some bank deposits it holds to help spur more lending, though cash-rich companies appear generally uninterested in borrowing.
Growth also has been stunted by slow increases in wages, which leave households less inclined to spend. Companies are still drawing down excess capacity built up during decades of fast growth, and have held back on domestic investments, viewing their shrinking and aging home market as less attractive than other faster growing economies in Southeast Asia and elsewhere.
Consumer demand fell more than expected in the last quarter, dipping to a four-year low, offsetting moderate growth in business investment, said Marcel Thieliant of Capital Economics. He expects consumer demand to perk up in coming months, in anticipation of a sales tax hike, to 10 percent from 8 percent, in April 2017. Read more