Japan’s economy likely shrank in April-June as exports slumped and consumers cut back on spending, a Reuters poll showed, boding ill for Prime Minister Shinzo Abe’s policy drive to lift the economy out of decades of deflation.
China’s economic slowdown and its impact on its trade-reliant Asian neighbors have also heightened the chance that any rebound in growth in July-September will be modest, analysts say.
Growing signs that Japan’s economy is at a standstill are clouding the outlook for the premier’s “Abenomics” program aimed at ending 15 years of deflation with bold monetary and fiscal stimulus to boost growth.
It may also rekindle market expectations that the Bank of Japan will expand monetary stimulus again to prop up the economy, though many central bankers remain wary of acting any time soon.
“If the BOJ is forced to cut its economic forecasts sharply, there’s a chance it will consider easing policy again,” said Izuru Kato, chief economist at Totan Research Institute.
Data on Monday is expected to show the world’s third-largest economy shrank at an annualized rate of 1.9% in the second quarter, after expanding 3.9 in the first quarter, according to a Reuters poll.
Bad Weather?
Policymakers blame bad weather for weakness in private consumption, which likely suffered a quarterly fall of 0.4%, and believe that exports will rebound as global demand gradually picks up.
But some in the BOJ fret that consumption may fail to gain momentum as rises in food and grocery prices outpace wage gains. Sluggish growth in China and other Asian economies may also dent exports, keeping the BOJ under pressure to expand stimulus.
Many analysts say weak GDP data alone won’t trigger an immediate monetary easing.
But economists have already sharply cut their growth forecasts for the current fiscal year on expectations of a big contraction in April-June, and expect the BOJ to do so too when it reviews its long-term projections in October.
Political factors, however, may discourage the BOJ from expanding its already massive asset buying stimulus program. Abe’s close aides have signaled that further easing is unwelcome as it could spur further falls in the yen which would boost import prices and the cost of living for households.
“The yen already fell a lot but that didn’t help the economy much. Trying to trigger further yen falls with additional easing could back-fire and hit households,” Kato said.
Japan’s economy suffered a mild recession last year as consumption took a hit from a sales tax hike in April 2014. Growth rebounded this year, only to slow again as exports and consumption remained disappointingly weak.
Exports Growth Too Slow
Japan’s annual export growth was expected to slow in July from June’s big gain, a Reuters poll found, suggesting overseas demand may not be enough to help the economy rebound from last quarter’s expected contraction.
The poll of 20 economists forecast a 5.5% increase in exports in July from a year earlier, slowing from a 9.5% annual gain in the prior month.
Analysts are closely watching the July export data for clues on how the economy may recover in July-September from an expected April-June slowdown caused by sluggish exports and weak private consumption.
The ministry of finance will publish the trade data on Aug 19.
Gross domestic product data out on Aug 17 is expected to show the economy contracted at an annualized rate of 1.9% in April-June, with net exports shaving 0.3% point off GDP growth due to weak demand from China and South East Asian economies.
