Japan's Prime Minister Shinzo Abe’s efforts to reverse years of poor growth with a big stimulus programme have proven disappointing as output contracted by 0.4% in the second quarter.
Official data revealed the shrinkage and underlined the so-called “Abenomics” growth policy's failure to make a difference so far.
Weak and slow
Japan is the world’s third largest economy thus impacting on entrepreneurship and small business around the world in many different ways.
A lack of demand in domestic consumption and a slowing down of exports have combined to pile pressure on the government to take further action.
Private consumption, which makes up around 60% of GDP in Japan, fell by 0.8% and exports saw a 4.4% decrease.
Analysts at DBS commented: “Should growth remain sluggish for another quarter and inflation expectations start to fall, the odds of additional monetary easing would increase substantially.”
Shinzo Abe's two-year-old economic policy nicknamed 'Abenomics' has the twin aims of revitalising economic growth and addressing years of deflation.
Huge amounts of government spending, central bank monetary easing and other reforms all play a large role. However, the protected agricultural sector has been a major problem.
Japan’s central bank reduced its annual growth and inflation forecasts in July for the fiscal year to March 2016. Although it has also held back from announcing any further monetary easing, experts predict that another round will occur later in the year.
SMBC Nikko Securities said some of the problems lay elsewhere: “The sharp plunge from the previous quarter’s surprise growth was partly due to disappointing demand for Japanese products in the US, Chinese and other resource-exporting markets.”
“Sluggish wage growth and bad weather drove down consumption at home,” it suggested.
In spite of the economic contraction, the country’s main Nikkei stock market index rose by 0.6% as the prospect of more monetary stimulus excited investors.
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