Thursday - Jul 27, 2017

Japan’s economy shrinks more than initial estimates


Japan's economy shrinks more than initial estimates

As had been generally expected Japan’s economy contracted in the three months to June, but by more than initial estimates, reaching as high as 7.1%.

Some form of contraction during the second quarter of 2014 was expected, driven by a 3% increase the nation’s sales tax, up from 5% in April to 8%.

Japan’s economy, rated still as being the world’s third-largest, decrease by just 1.8% in the quarter to June, compared to an increase of 1.5% in the first quarter of the financial year.

Private consumption, which makes up some 60% of Japan’s total economic activity continued to be buoyant with the nation’s consumers focusing their major purchases during the first quarter in an attempt to beat the sales tax hike that was implemented during April.

According to official data released by the Japanese government at the end of August the nation’s households spent considerably less during the second quarter, with retailers preferring to clear the stocks meaning that factory output remained almost totally static in July. Despite the downturn in retail sales in July showed a steady increase, creeping upwards by 0.5% from July of last year, after dropping by 0.6% in June.

Japanese economists are now encouraging Prime Minister Shinzo Abe, to change his position on raising the sales tax to 10%, stating that the country’s current economic landscape should encourage the government to introduce even more reforms.

Shinzo Abe announced a government re-shuffle at the beginning of this month, which is regarded as a signal of his determination to get the economy back on track, and profoundly by the end of the year.

A second decision is expected to be made in December regarding a second increase to the sales tax, which would see it increase to 10% in October of 2015.

In a recent statement Japan’s economy minister Akira Amari confirmed that the nation was ready to introduce a stimulus package designed to buffer any impact of an additional sales tax hike in the event that it was introduced.

Photo credit: Jennifer Kumar

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