Growth in Japan’s economy slowed to a crawl in the second quarter and analysts see more weakness ahead. The government is considering new stimulus measures including boosting graduate employment and the corporate sector, Kyodo News Agency said late on Monday, after data that testified to slowing growth in Japan’s main export destinations such as the United States and China and a stimulus-driven domestic recovery that has petered out. Against a backdrop of concerted efforts to talk down the yen after it surged to a 15-year high against the dollar last week, quarterly gross domestic product grew just 0.1 percent. That was well below the median market forecast of 2.3 percent and the United States’ 2.4 percent annualised growth in the same quarter. It followed revised 4.4 percent annualised growth in the first quarter, when both exports and a stimulus-driven recovery in consumption contributed to overall growth.
In the April-June quarter the stimulus effects have worn off, leaving exports as the sole engine of growth and with its contribution to growth halved to 0.3 percent. Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa are expected to meet later this week o discuss possible policy responses. Citing government sources, Kyodo said the growth-boosting government measures are expected to include stimulating personal consumption of eco-friendly products, helping new graduates find jobs and revitalizing small and midsize companies, Kyodo quoted the sources as saying.
The latest output figures put China ahead of Japan as the world’s second-largest economy for the quarter on a nominal dollar basis, at $1.2883 trillion against $1.3369 trillion, said Keisuke Tsumura, a parliamentary secretary at the Cabinet Office. “(But) since we have different calculations for seasonal adjustments, it would be correct and fair to compare the figures for the whole year,” Tsumura said. China’s top currency regulator said last month that his country’s economy had already overtaken Japan’s. “The economy may enter a lull late this year or early next year, or even stagnate,” said Yoshiki Shinke, senior economist, Dai-Ichi Life Research Institute. “Much depends on the performance of overseas economies.”
Analysts added that the rise in the yen, which climbed to 84.72 per dollar, may begin to pinch export growth in the latter half of the fiscal year to next March. Late last year, the last time the yen/dollar strengthened beyond the 85 yen mark, the BOJ called an emergency meeting and announced a three-month funding scheme, a day before Shirakawa met with then-Prime Minister Yukio Hatoyama. The yen has risen steadily against the dollar since early May, gaining more than 10 percent and closing in on its 1995 record high of 79.75 per dollar, prompting markets to speculate that Tokyo might take action. But currency intervention is seen as difficult, whether jointly or alone, although market players say the risk of solo action increases the closer the yen gets to 80. Investors see a monetary policy response from the BOJ as more likely. Signs of a faltering economy put more pressure on Kan ahead of his party’s leadership vote next month in which he may face a challenge from powerbroker Ichiro Ozawa or a proxy, either of whom would be less keen to forge ahead with fiscal reform. Japan’s recovery has been spotty since emerging from its worst recession since World War Two in mid-2009.