Japan’s economic growth falters

Tokyo

Japan’s economic growth rate slowed sharply in the second quarter of 2016, with gross domestic product (GDP) increasing by an annualised rate of just 0.2% in the three months to June against a rate of 2% in Q1.

Only increased spending by the government helped avert an even worse figure by offsetting the impact of falling exports caused by the strong yen (JPY) and weak corporate investment. Infrastructure spending was stepped up in Q2, although the April-June period is the first quarter in Japan’s fiscal year.

Earlier this month, the cabinet of Japan’s prime minister, Shinzo Abe, approved a JPY 28 trillion stimulus package – equivalent to US$276bn/€248bn – in the latest effort to revive the economy. The latest package included JPY15,000 handouts to 22m Japanese citizens in the low income bracket, which will maintain government spending in subsequent quarters.

The fiscal stimulus is accompanied by the Bank of Japan’s policy of negative interest rates and an asset purchasing programme. Abe has also postponed a planned further rise in Japan’s sales tax from 8% to 10%, which was scheduled for April 2017 but will now not be introduced before October 2019.

The increase is needed to help fund Japan’s substantial public debt, but the previous increase in the tax – from 5% to 8% – in early 2014 caused the economy to contract as consumers cut back on spending.

Consumer spending, which was flat in the latest quarter, represents 60% of Japan’s GDP. Despite record earnings at many major Japanese corporates, salary increases have remained subdued with an average rise of 0.3% in Q2 from Q1.

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