Japan’s economic woes continue to get worse after it was reported that the nation’s third quarter contraction was actually worse than initially reported. According to Reuters, the Japanese economy declined 1.9 percent in the July-to-September period, down from the 0.5 percent figure and the revised 1.5 percent statistic.
Furthermore, manufacturers’ confidence fell this month and analysts say it will further decline heading into the new year. Also, business investment was one of the biggest factors behind the drop in the gross domestic product as this area dropped 0.4 percent instead of the first forecast of 0.2 percent.
This news jolted the markets and garnered support for Prime Minister Shinzo Abe’s decision to postpone another sales tax hike. The April three percent sales tax increase seemed to have had a much greater effect on the economy than what was initially believed. This prompted the prime minister to delay a proposed two percent jump on the sales tax.
Abe called a snap election soon after the economic figures were reported last month. The incumbent leader hopes voters will support him in his government reforms, economic stimulus, tax hike delay and perhaps moving forward with unpopular schemes. Polls suggest that Abe’s coalition will gain a landslide victory, though his Abenomics has certainly took a turn for the worse in recent months.
“The large drag from inventories last quarter overstated the weakness of the economy somewhat. In the meantime, the monthly data have been more encouraging,” Marcel Thieliant, Japan economist at Capital Economics wrote in a note to investors. “The upshot is that the economy likely returned to growth this quarter.”
Early last month, the Bank of Japan (BOJ) announced it would amplify its government bond purchases by $181 billion for a total of $725 billion annually. The purpose of this decision is to spur economic growth and reverse the trend of deflation and reach its two percent inflation rate target.
The BOJ is scheduled to meet Dec. 19 and economists expect policymakers to maintain an optimistic viewpoint for next year. Also, it is believed they will make the case that the world’s third-largest economy is experiencing moderate growth in the final quarter of the year.
Other proposals Abe has put forward is to restart reactors that went offline soon after the Fukushima disaster and revising the country’s post-war pacifism.
What most are honing their attention on, however, is private consumption. With the sales tax hike in April still affecting the pocketbooks of consumers across the country, analysts are worried this will persist in diminishing the country’s growth.
“I’m more concerned about private consumption. If you look at all the high frequency data, it does look like capex is on a solid footing, led by a recovery in exports,” said Izumi Devalier, Japan economist at HSB, in an interview with CNBC. What I’m more concerned about long-term is whether private consumption sufficiently picks up to support growth next year.”
Devalier added that she doesn’t see private consumption recover until at least the next fiscal year. She argued that the prime minister is betting on wage hikes, but companies are remain apprehensive about raising salaries during tough economic times.
