Japanese growth slower than forecast as exporters struggle

Japan’s economy grew less than forecast in the three months to the end of June 30th as business spending contracted for a second straight quarter and exporters struggled with the resurgent yen.

Gross domestic product expanded by an annualised 0.2 per cent in the second quarter, less than the median estimate of economists for a 0.7 per cent increase.

Business spending declined 0.4 per cent from the previous three months (estimate 0.2 per cent), according to the data released by the cabinet office on Monday.

Private consumption increased 0.2 per cent over the same period (estimate 0.2 per cent). Net exports subtracted 0.3 of a percentage point from GDP.

Growth strategy

Policymakers are struggling to find a strategy to produce consistent growth, with the economy oscillating between slight expansion and contraction.

Businesses and consumers have been reluctant to spend, resulting in negative GDP numbers in five quarters over the past three years.

The data keeps pressure on the Bank of Japan to consider more monetary stimulus at its September meeting while increasing the need for the government to tackle structural obstacles to growth.

Corporate investment has declined for two consecutive quarters, the first time since the sales-tax hike in 2014, said Betty Rui Wang, an economist at Standard Chartered Bank in Hong Kong. "GDP signals, especially for the business sector, that there is big downside risk," she said. She also noted that the report does not fully reflect the UK's June 23rd Brexit vote.

"The strong yen's continued since the beginning of the year and I think a wait-and-see posture may have spread when it comes to business investment," said Masaki Kuwahara, an economist at Nomura Securities in Tokyo.

“The number confirmed that there are still risks in the global economy,” said Kuwahara. “China’s economy is a major risk for Japan.”

Measured quarter on quarter, GDP did not budge (estimate 0.2 per cent). Private inventories' contribution to GDP was zero. The GDP deflator rose 0.8 per cent from a year ago. – (Bloomberg)