Japan’s economic growth weaker than forecast

Japanese Prime Minister Shinzo Abe at a press conference in TokyoImage copyright
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Is ‘Abenomics’ no longer working?

Japan’s economy grew at a weaker-than-expected rate in the second quarter despite an aggressive spending policy by the government.

Gross domestic product grew at an annualised rate of 0.2% in the three months to June, below market forecasts for 0.7% and a marked slowdown from the 2% rate in the first quarter.

The figures come after the government launched a massive new stimulus package worth 28 trillion yen ($265bn; £200bn).

Japanese stocks fell after the data.

The benchmark Nikkei 225 share index dropped 0.3% on concerns that Asia’s second-largest economy will continue to struggle.

On top of Prime Minister Shinzo Abe’s fiscal stimulus, Japan’s central bank is running negative interest rates and an unprecedented asset-purchase programme.

Timothy Graf, head of macro strategy at State Street Global Markets said Japan’s growth figures “could have been a lot worse”.

There are “worries building over slowing domestic consumption, capital expenditure and the potential for weaker net exports thanks to a stronger yen,” he said.

“It still keeps markets focused on whether the Bank of Japan will ease policy later this year, but there may be some sense of relief that the current growth slowdown is not more aggressive.”

‘Wave of stimulus’

Mr Abe has been under pressure to end two decades of deflation, or falling prices, but analysts say his policies are not working.

“The main aim of Abenomics was to turn around the economy in a fundamental sense, so basically reform the traditional blockages to growth, and on that front we’ve seen very little progress,” Marcel Thieliant, Japan economist at Capital Economics told the BBC.

“Basically the economy is riding on a wave of monetary stimulus but as soon as that wave loses momentum we will basically get back to where we were before.”

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Business investment has fallen for a second quarter in a row

Due to the weak state of the economy, Mr Abe has delayed another increase to the country’s controversial sales tax to 2019.

Japan needs to raise more money to fund its public debt, one of the world’s largest, but when it last increased the sales tax in 2014 the economy shrunk as people cut back on spending.

Private consumption accounts for about 60% of GDP but that only rose 0.2% in the second quarter, compared with a 0.7% increase the quarter earlier.

Business investment also fell for a second straight quarter as the strengthening Japanese currency dented confidence and demand for the country’s exports.

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