Japan’s GDP Contracts Sharply
A revised reading on Japan’s gross domestic product (GDP) showed the economy contracted an annualized 7.1 percent in the second quarter, worse than initial estimates of 6.8 percent as a nationwide consumption tax that took effect in April dragged on its recovery.
“While the headline [quarterly] figure was in line with expectations, the details were rather discouraging: non-residential investment was revised from a 2.5 percent [quarterly] fall to a 5.1 percent [quarterly] plunge. The only reason why overall demand didn’t decline even more sharply was that inventories bolstered output by 1.4 percentage points instead of the initially estimated 1.0,” Marcel Thieliant, Japan economist at Capital Economics, said in a note.
Markets were little changed on the news. The Nikkei snapped their two-day losing streak to breachthe 15,700 level while then yen traded steady against the U.S. dollar.
“This is the dilemma facing the BOJ (Bank of Japan) because when you look at personal savings, they are about $10 trillion a year which equates to a third of current income tax levels. So clearly there aren’t enough excess cash in the system to fund that kind of consumption tax or increase in income tax,” said Robert Medd, partner at GMT Research.
“Japan’s problem is not growth or the lack of it; Japan’s problem is the lack of profitability and wealth creation,” said Medd.
“The export climate index remained strong in August, while overseas machinery orders have surged. Exports should therefore start to recover in coming months, so the trade shortfall should narrow,” he added.
Source: CNBC
