Japanese Progress Over?

Forex News

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."