Abe’s Economy Slips Back Into Recession – More Arrows To Come

The Japanese economy slipped back into recession in the July-September period despite Prime Minister Shinzo Abe's efforts to boost private consumption and capital spending.

For the second straight quarter of contraction in inflation-adjusted gross domestic product, the economy shrank an annualized real 0.8 percent after a revised 0.7 percent drop in the April-June quarter.

The government will now probably have no choice but to take action to stimulate the economy, and pressure for additional monetary easing will likely build up again

The economy contracted in the third quarter on sluggish business investment, confirming what many economists had predicted.

Despite numerous initiatives including an aggressive campaign to get women into the workplace, this is Japan’s second recession since Prime Minister Shinzo Abe took office in December 2012.

Concerns about a Chinese-led slowdown apparently weighed on consumption, which accounts for around 60 percent of Japan’s GDP, and capital spending, raising the bar for Abe’s government to stimulate demand and steer the economy toward growth.

The Japanese government has been urging companies to increase capital spending and raise wages for employees, as many Japanese companies have benefited from the yen’s weakness and reaped record profits. Corporate capital spending, which the government sees as a key to shoring up the economy, slid 1.3 percent for the second straight quarterly decline as firms maintained a cautious stance amid a slowdown in emerging economies including China.

Japanese conglomerates have been expanding overseas and acquiring overseas businesses however the mindset of company executives remains stuck in a deflationary cycle.

In a string of somber economic reports in the past few months, the Bank of Japan’s preferred core price gauge fell, household spending unexpectedly dropped, vehicle production declined, retail sales slipped and imports fell while exports stagnated. One bright spot: Industrial output advanced 1.1 percent in September from the previous month, yet was not enough to make up for contractions in July and August.


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