Japanese Progress Over?
Trade tension with the US might be harming the Japan’s economy, that had just recovered from the recession, economists claim. Some even say Shinzo Abe's fiscal policy, a so-called "Abenomics," is no longer efficient and policymakers should come up with another way of improving the economy. Atsushi Takeda (chief economist at Itochu Economic Research Institute) told: "If signs of recession emerge, that would derail Japan's path to beat deflation and show Abenomics failed”.
Takeda assumes that the government could present a spending package of 27.33 billion dollars (3 trillion yen) that includes tax breaks for cars and home appliances. Today’s data showed that the economy contracted 0.6% at an annual pace in Q1, worse than the projected 0.4% upward GDP revision. Capital spending increased, but consumer spending turned out to be weaker. This contraction ended the period of 8 straight quarters of growth, that marked the longest streak of expansion in 38 years.
From January to March, private consumption dropped 0.1%, comparing to Q4. A BOJ index that incorporates spending of retailers and households was up 2.4% in April from March, marking the first rise in almost half a year. Vegetable prices have broadly declined in Q1. Factory output barely lifted 0.3% in April.
Shuji Tonouchi (senior market economist at Mitsubishi UFJ Morgan Stanley (NYSE:MS) Securities) said: "I still expect the economy to bounce back in the second quarter, but industrial output forecasts are not strong, and trade friction could become a problem," And: "The risks are tilted to the downside." Yoshiki Shinke (chief economist at Dai-ichi Life Research Institute) projects the economy to rise by an annualized 1.0% in Q2, but acknowledges that Trump’s tariffs pose a serious threat. He noted: "Companies don't like uncertainty so they could put off investment plans if trade frictions escalate," adding: "If the economy were to peak out, that would probably come from external factors beyond Japan's control."