Japan – disappointing second quarter economic growth

The economic strategies of the new Prime Minister of Japan, Shinzo Abe, do not appear to be that effective, as the three month performance through June for Japan was far below expectations. 

In the April-June quarter, gross domestic product in Japan only grew by a disappointing 2.6 percent. Many market experts predicted that it would at least grow by more than 3 percent.

Shinzo Abe stated that the extent of GDP growth is one of the key factors in deciding whether to raise consumption tax (sales tax) in April.

Economy Minister, Akira Amari, said: “My views is that (GDP), which is one of the factors by which we plan to make the judgment, continues to produce good numbers.”

Amari added that the GDP figures were “solid” and that the government is still likely to raise the sales tax.

However, business investment has been poor and there need to be policy changes to improve it.

Mr. Amari commented:

“Personally, I’m hoping that we will take whatever it takes–including tax, budget and monetary policies–to ensure solid development in capital investment. It will be a key task for us to work on measures to strongly bolster capital expenditures in the parliamentary session this autumn.”

Since the beginning of 2013, the Nikkei Stock Average increased by 30% and the Yen weakened by 12 percent against the dollar, showing some positive improvements in the economy.

Lack of investment in Japan

In fact, the weak yen has resulted in company profits almost doubling in the second quarter, according to recent reporting by SMBC Nikko Securities. Despite the increase in revenue there has been a lack of investment, with capital expenditures dropping 0.1 percent.

This disappointing second quarter economic growth in Japan may not be too much to worry about though. Taro Saito, a senior economist at the NLI Research Institute said that the low GDP figure shouldn’t be a cause for alarm.

He added:

“Looking overall, it’s clear that the economy is in recovery. There is no reason why this figure should be a reason to postpone the sales-tax hike.”

Even though residential spending was lower than he had expected, this could change when more data is available.

In fact, some economists believe that the low GDP figure could be a result of the way that the data are gathered. Residential investment was only based on progress in construction, according to a government official briefing.

The Japanese Ministry of Finance will be releasing a survey this September which could provide a better and more accurate description of Japan’s economy.

Last week, the International Monetary Fund (IMF) said that Japan urgently needs to reduce its debt mountain.