(Nov 17): Japan’s economy contracted for the first time in six quarters, supporting Japan Prime Minister Sanae Takaichi’s case to compile an ambitious economic stimulus package.
Japan’s real gross domestic product shrank by 1.8% on an annualised basis in the three months through September, according to a Cabinet Office report on Monday (Nov 17). That was better than economists’ median estimate of a 2.4% fall.
Private residential investment and exports were among key factors exerting a drag on overall output, as expected due to the introduction of regulatory changes for the construction industry and ongoing US tariffs. Consumer spending, the biggest component of GDP, barely budged, failing to counteract the weakness.
The data will likely bolster the Takaichi administration’s conviction that aggressive fiscal spending is needed to shore up the economy. The premier is expected to unveil her first economic package as soon as this week, with traders focused on the figure for actual spending as they weigh the risk that rising debt issuance could threaten financial market stability.
The economic downturn was widely forecast among economists after Japan’s GDP grew by a revised 2.3% in the second quarter, roughly four times more than Japan’s growth potential. The downward bounce was exacerbated particularly by a plunge in housing investment, which fell an adjusted 9.4% versus the previous quarter.
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Private consumption, which accounts for more than half of the economy, rose by an anaemic 0.1%, in another sign that households continue to curb discretionary outlays as they struggle with elevated living costs that are keeping real wages stagnant.
Japan’s key inflation gauge has risen at or above the BOJ’s 2% target for three and a half years. Takaichi has repeatedly said addressing the pain of inflation is her utmost priority. Promised steps to that end include utility subsidies and cuts to gasoline taxes.
Capital spending rose 1.0% as corporate sentiment in the period remained relatively robust. The BOJ’s latest Tankan survey showed that large companies planned to boost investment in plants and equipment this year despite expectations that profits will decline.
See also: Japan approves US$135b stimulus to mitigate inflation pain
Economists are anticipating that the size of the economic steps will slightly exceed last year’s ¥13.9 trillion. The package will offer a first glimpse as to how Takaichi aims to balance the largesse of fiscal stimulus with the discipline of fiscal responsibility, as she has vowed to do.
Analysts will be monitoring how Monday’s data might influence Takaichi’s views regarding the Bank of Japan’s policy path. She has already indicated her preference for the BOJ to go slowly with rate hikes by emphasising the importance of monetary policy as part of her pursuit of a strong economy.
The central bank delivers its next policy decision on Dec 19. Half of BOJ watchers surveyed by Bloomberg last month said they expect a rate hike at that time, while almost all economists predicted a move no later than January.
Uploaded by Arion Yeow
