TOKYO—Japan’s
economy shrank again in the third quarter, underscoring the challenges Prime
Minister Shinzo Abe faces in trying to engineer a
sustainable recovery.
Yet the contraction was
relatively mild, and a decline in inventories was the biggest factor. Japanese
government officials highlighted the positive, expressing confidence that a
recovery was already under way.
“Of
course I believe the economy will return to positive growth in the fourth
quarter,” Economy Minister Akira Amari said.
Mr. Amari said a fiscal
stimulus package to be prepared by the end of the year would focus on targeted
measures such as direct help for the poor and more child-care facilities for
working parents. The package is expected to total around ¥3 trillion ($25
billion).
Mr. Abe took office nearly
three years ago pledging to restore Japan to robust, sustainable growth with a
package of unprecedented monetary stimulus, fiscal spending and structural
changes. But Japan’s economy has struggled to gain traction, contracting in
five of 11 quarters.
Gross
domestic product—the broadest measure of a nation’s economic activity—shrank at
an annualized pace of 0.8% in the July-September period from the previous
quarter, government data showed Monday. That followed a revised 0.7% contraction in the second quarter. Two
consecutive quarterly contractions is commonly considered a technical
recession. It was the second in two years for Japan.
A drop in inventories cut 2.1
percentage points from total growth, outstripping positive contributions from
private consumption and exports. That could turn into a positive in coming
months, though. When inventories are low, companies usually increase output,
leading to faster growth in subsequent quarters.
Business investment shrank an
annualized 5.0% during the quarter, a second-straight decline, as a global
slowdown weighed on corporate earnings. Steel makers and machinery producers
have slashed their earnings forecasts for the business year.
Private consumption, which
accounts for some 60% of Japan’s GDP, grew 2.1% after contracting 2.3% in the
previous quarter. But few economists see this as heralding a sustained
recovery. Sluggish wage growth continues to burden consumer sentiment.
Japanese
officials acknowledged the risk posed by external conditions, including a slowdown in China and the aftermath of last week’s terrorist attacks in Paris, with the attacks perhaps
chilling sentiment among businesses and consumers worldwide.
Few
economists predicted the latest economic data would prompt additional monetary
stimulus by the Bank of Japan. The
central bank confounded many economists late last month by refraining from
taking action.
With Monday’s data showing
consumer spending improving, the negative GDP reading won’t prompt the BOJ to
act now, said Mari Iwashita, chief market economist at SMBC Friend Securities.
Mr. Abe and BOJ Gov. Haruhiko
Kuroda have repeatedly urged Japanese businesses to invest more and pass along
more of their profits to employees in the form of pay increases.
Izumi Devalier, economist at
HSBC Holdings Inc., said the decline in capital expenditure seen during the
third quarter wouldn’t be reversed with additional monetary stimulus.
“If record high corporate
profits and yen weakness aren’t enough to get corporates to invest in Japan,
there are clearly deeper-seated forces at work, involving concerns over the
country’s declining long-term growth potential and increased competition
abroad,” she said in a note. “Another round of [quantitative easing] is not
going to change this.
- Mitsuru Obe
[Wall Street Journal]
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