Figures just released from Japan show that the economy contracted by 0.2% in Q3. This follows on from a contraction of 0.3% in the second quarter of the year and means that Japan has fallen into its fourth recession since the Global Financial Crisis. The contraction was worse than analysts had expected and has been blamed on weak domestic demand – the anaemic global demand has continued to hit Japanese exports as well. Despite this observation, private consumption saw a 0.5% increase over the Q2 level.
The poor economic data is likely to spur the Bank of Japan on to further easing of monetary policy in the near future, in a bid to stimulate the economy. Any easing of monetary policy ought to weaken the Yen somewhat which would help Japanese exports a little. Investors have expected that the Bank of Japan will make such a move for several weeks now, so the move will not come as a surprise.
Japanese companies have enjoyed excellent profits, but have shown unwillingness to pass this on in higher wages to staff which would be likely to bolster domestic consumer spending (and hence demand). Indeed, business spending slipped by 1.3%, more than three times the predicted decline of 0.4%, marking a second straight quarter of retrenchment.
The economics minister, Akira Amari, remained Bullish despite what must have been disappointing economic data: "While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far."
Consumer spending has picked up since last April’s increase in sales tax level, but a second increase has been put off for fear of derailing domestic demand further. The increase was needed to bring more revenue into the exchequer to offset social security costs associated with Japan’s aging population.