In spite of efforts by the Japanese governments to boost spending, the country’s economy recorded weaker than expected growth in the second quarter.
Japan Economy More Sluggish In Its Second Quarter
Reports show that gross domestic product grew at just 0.2% annualized rate, well below the forecasted 0.7%. The current growth rate is also significantly lower than the 2% that was recorded in the first quarter.
These sluggish results follow the government’s massive spending efforts epitomized by a $265 billion stimulus package.
After the data was released, Japanese stocks witnessed gradual decline.
The Nikkei 225 share index fell 0.3 percent following worries that the second largest economy in Asia does not show signs of recovery.
In addition to the fiscal stimulus championed by Prime Minister Abe Shinzo, the central bank in Japan has initiated a never-before-seen asset purchase and negative interest rates initiative.
It could've been worse
According to Timothy Graf of State Street Global Markets, the growth figures coming out of Japan could have been a lot worse.
In a statement, he said, “Concern is building up due to a slowdown in domestic consumption, low capital expenditure and potentially weak net experts resulting from a strong yen.”
He further noted that the markets are anticipating an easing of the monetary policy later this year. However, there is a sense of relief that the current economic performance is not as bad as it could have been.
Japan’s premier, Abe Shinzo has been experiencing mounting pressure to bring to an end the deflation that has characterized Japan’s economy for two decades. Analysts are pessimistic about the efficacy of his policies.
Japan-based economist, Marcel Thieliant of Capital Economics says, “The primary goal of Abenomics was to fundamentally turn around the economy by eliminating the traditional obstacles to growth and we have seen very little progress on that front.”
He added the Japanese economy was floating on a series of monetary stimulus packages but the economy will go from where it was before if the momentum is lost.
Following the weak nature of the economy, Mr. Abe postponed the country’s sales tax with a possible hike set for 2019.
Having one of the largest public debts in the world, Japan needs to urgently raise money to fund this debt. However when the sales tax was last increased in 2014, consumers cut back on spending and the economy subsequently shrunk.
So far, investments in the business sector continue to fall far a second consecutive quarter following a strengthening yen that has reduced demand for Japanese exports.