Tokyo: Japan’s economy probably shrank for the first time in nearly two years during the April-June quarter, dragged down by weaker-than-expected consumer spending after a sales tax hike and disappointing factory output, a Reuters poll showed.
Exports, a main driver in the economy, also remained sluggish due to weak demand from emerging nations.
Gross domestic product data due to be released on August 13 is expected to show the economy shrank at an annualised 7.1 per cent in the second quarter, according to the median forecast in a Reuters poll of 25 economists.
It would be the first contraction since July-September in 2012. The economy grew an annualised 6.7 per cent in the first quarter thanks to an unexpected surge in capital spending and strong consumer spending before the sales tax increase.
The severity of the contraction could raise pressure on the Bank of Japan to ease policy further and would complicate prospects for a planned second hike in the sales tax in 2015.
“Economic data for June as a whole was weak. We had already known consumption was weak in April and May, but capital spending was also feeble and the export recovery was dull,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
But Miyazaki doubted whether the BOJ would be rushed into any fresh easing, unless there was a significant deterioration in the output gap, measuring the difference between actual and potential GDP.
On a quarter-to-quarter basis, Japan’s economy was forecast to have contracted 1.8 per cent in the second quarter after 1.6 per cent growth in the first quarter.
Readiness to expand
On Friday, Bank of Japan Governor Haruhiko Kuroda defended the central bank for maintaining an upbeat economic view despite recent soft data.
Kuroda, however, reiterated his readiness to expand the BOJ’s stimulus if inflation faltered on the path to the 2 percent target rate.
He has repeatedly voiced confidence that Japan can achieve that target during the next fiscal year beginning in April 2015.
According to the poll, private consumption, which makes up about 60 per cent of the economy, was likely to have dropped 4.3 per cent in the second quarter as consumers reined in spending after going on a shopping spree before the tax hike.
That would be the first fall since July-September in 2012 and bigger than the fall seen when Japan last raised its sales tax in the second quarter of 1997.
Capital spending — which has been a weak spot — is expected to have declined 3.1 per cent after a 7.6 per cent gain in the first quarter.
GDP data
External demand is forecast have added 0.8 percentage point to the economy in the second quarter, after subtracting 0.3 percentage point in the first quarter.
The Cabinet Office will release the GDP data on August 13 at 8.50am (2350 GMT on August 12).
Japan’s current account balance probably swung back to a deficit for the first time in five months in June due to a slow recovery in exports and the higher cost of fuel imports.
The deficit is seen at 324.3 billion yen (Dh11.6 billion, $3.15 billion) in June compared with a 522.8 billion yen surplus in May, according to the poll.
The Ministry of Finance will release the current account data at 8.50am on August 8 (2350 GMT on August 7).
