In seasonally-adjusted annualised terms, the economy contracted 1.6%, an improvement on the 1.9% decline expected. Japan’s economic minister believes that bad weather and the rise in food prices may be discouraging an increase in consumer spending during the period, and added that further economic stimulus is not presently on the agenda. Capital investments, which grew by a healthy 2.8 percent in the January-March quarter, posted their first negative figure in three quarters with a 0.1 percent decline. Compared with the previous quarter, GDP contracted 0.4 percent, slightly better than expectations for a 0.5 percent contraction from a Reuters poll. But stagnant wage growth and corporate investment have so far slowed progress toward a strong, sustained cycle of growth. But as more tepid second-quarter data started to roll in, some economists warned that Japan’s recovery was going to be wobbly, with an inventory build-up taking a toll on factory output. Weak trade also contributed to the Japanese malaise in the three months to June, stripping close to 0.1 percentage points off growth. Consumer spending and exports were the biggest contributors to the shrinking of the economy. The upbeat data had offered some good news for Prime Minister Shinzo Abe’s more than two-year-old policy blitz, dubbed Abenomics, aimed at kickstarting anaemic growth and conquering years of deflation. Earlier this month, Bank of Japan (BoJ) chief Haruhiko Kuroda said he would consider expanding the bank’s record 80 trillion yen ($640 billion) annual asset-buying scheme – a means to pump money into the economy – if weak oil prices kept holding back near-zero inflation. “The interesting part is, of course, we are coming in to two years of quantitative easing in Japan�, he noted. “This could raise chances of additional fiscal stimulus�. Economists are more optimistic about the second half of the year. As China’s economy has slowed, its demand for exports has also lagged. But economists have already sharply cut their growth forecasts for the current fiscal year on expectations of a big contraction in April-June, and expect the BOJ to do so too when it reviews its long-term projections in October. Despite a recovery in the US, the slowdown in China, a major market for Japanese exporters, has raised a red flag.

Source