Japanese economy shrinks 0.4% in Q4

TOKYO • Japan's economy contracted in the last quarter of 2015, official data showed yesterday, dealing another blow to Prime Minister Shinzo Abe's faltering bid to boost growth.

The figures will fan talk of fresh Bank of Japan (BoJ) measures, after policymakers shocked markets last month with an unprecedented negative interest rate policy - widely seen as a desperate move to kick-start the world's No. 3 economy.

Weak demand for big-ticket items such as cars held back the economy, which shrank 0.4 per cent in October-December - or an annualised 1.4 per cent drop.

That was Japan's second quarterly contraction in 2015, although gross domestic product edged up a tepid 0.4 per cent for the whole year, underscoring Tokyo's challenge in slaying deflation and cementing a sustained recovery.

Tokyo brushed off the weak numbers, saying "the fundamentals (of the economy) remain good", but analysts countered that Mr Abe's growth plan was stumbling.

The Premier's bid to revive Japan's once-soaring economy, dubbed Abenomics, has also been shaken by a bloodbath on equity markets since the start of the year and a resurgent yen that threatened to dent companies' profits.

"The latest data shows that it is difficult to say the Abe government has achieved its goal of a 'virtuous cycle' of rising incomes, wages and investment," said Mr Tobias Harris, political risk analyst at US-based consultancy Teneo.

"Japan has remained too dependent on export-led growth, which has suffered in the light of China's slowdown and the effects it has had on the global economy."

Japan's factory output has suffered as worries persist about global growth, with revised data yesterday showing industrial production contracted 1.7 per cent in December, worse than a preliminary 1.4 per cent drop.

However, the Nikkei 225 stock index soared more than 7 per cent yesterday, boosted by bargain buying and a weaker yen following last week's 11 per cent drop.

The yen, which surged 4 per cent last week against the US dollar, turned lower yesterday on talk about the BoJ unveiling fresh monetary easing measures as well as speculation about Tokyo intervening in currency markets to stem the currency's rise.

The BoJ's negative interest rate policy aims to prod banks into lending by charging them for storing excess reserves with the central bank. But as Abenomics wobbles and the BoJ struggles to hit an ambitious 2 per cent inflation target, Mr Abe must decide whether to follow through with another sales tax hike next year.

The rise is seen as key to containing a spiralling national debt, but it could further dent spending.

"It is not carved in stone... if the real problems are going on, he can push it out," said Mr Nicholas Smith, Japan strategist at brokerage CLSA, referring to the planned tax rise.

"With what's going on in the market, this is a temptation."

AGENCE FRANCE-PRESSE

A version of this article appeared in the print edition of The Straits Times on February 16, 2016, with the headline 'Japanese economy shrinks 0.4% in Q4'. Print Edition | Subscribe