Japan's 0.4% deflated economy, assault to 'Abenomics'

By MoneyTimes

Aug 18, 2015 04:04 AM EDT

Japan's economy has been facing tough times when its economy began to contract by 0.4% in the year's second quarter.  It was an official data shown on Monday emphasizing how the prime minister's 'Abenomics' growth program doesn't work.

Abenomics is Japanese Prime Minister Shinzo Abe's advocacy to lift the country's deflating economy.  Abe's three-pronged approach combines fiscal expansion, monetary easing, and structural reform.

The main goal of Abenomics is to boost domestic demand and gross domestic product growth while increasing the inflation to 2%.  The prime minister's structural policies aspire to improve the country's prospects by adding competition, reforming labor markets and make trade partnerships stronger.

According to the cabinet office, its weak domestic consumption along with the slow exports count on the world's third largest economy, which decreased an annualized 1.6%, after posting growth in the preceding the two quarters.

Even with the rising crisis, the country's main Nikkei stock market index is highly intense by 0.6% as investors expect the government to bring out more monetary incentive.

The chief Japan economist at Credit Suisse said that "If weak private consumption persists, that would be a further blow to Abe's administration, which is facing falling support rates ahead of next year's Upper House election."

Roughly 60% of economic activity is what makes up private consumption that knocked down to 0.8% from the previous quarter, double the pace as expected by analysts.

April to June 2014 was the first deflation when a sales tax hike hit consumption since households spent less on air conditioners, clothing, and personal computers.

Overseas demand was cut off to 0.3% point off growth as exporting goods to Asia and the United States suddenly fall down.

The Economics Minister Akira Amari had acknowledged that consumption may have been hit by the rise in food prices as the BOJ's easing had weakened the yen and increased import costs.

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