Recession in Japanese Economy

Cabinet Office released on Monday initial gross domestic products of Japan in the third quarter this year, which indicated annual 0.8% decline. It was negative growth for two consecutive quarters that reflected recessive aspect of Japanese economy. No resilience in capital investment and personal consumption is a sign of failure in economic policy of Prime Minister Shinzo Abe, or Abenomics.

According to the survey of Cabinet Office, capital investment of private companies declined by 1.3% from last quarter. While many companies received a positive impact from cheap yen and petroleum, they were cautious to Chinese economy, which has been obscure for its future. Stocks of private companies also contributed to the decrease GDP by 0.5%. After slump of light car caused by tax increase, carmakers were devoted in reducing their stocks.

Personal consumption showed slight growth of 0.5%. It was brought by sales of air conditioner in growingly hot summer. In the silver week in September, good weather encouraged travel and going out for lunch or dinner in restaurants. “Although there partly is a weak tendency, the environment of employment and income keeps on improving and economy is in slow upswing,” told Akira Amari, Minister in Charge of Economic Revitalization.

However, economic decline for consecutive quarters generally means recession in foreign criteria. Wall Street Journal ran a headline of “Abenomics Sputters in Japan” for its editorial. The newspaper analyzed that Abe’s policy for active fiscal spending resulted in great amount of national debt and monetary easing policy did not encourage bank’s lending. It also criticizes Abe’s decision to raise consumption tax rate and increasing spending for welfare on child care and the elderly. Failing structural reform in labor market, the paper concluded that it was the time for rethink Abenomics.

Amari attributed the weak economy to business leaders. “The problem is weakness in capital investment. Managers have not get rid of deflation mind,” told Amari. Abe is going to deliver supplementary budget next year. With political reasons not to decrease his public supporting rate, Abe decided not to have fall session of the Diet, which would cause delay of economic policy. Putting priority on politics leads to further weakness of Japanese economy.

In September, Abe administration raised a goal of achieving ¥600 trillion of nominal GDP in 2020, which would require 3% growth or more. It is becoming empty promise so far, as we seen in 2% inflation target announced by Bank of Japan few years ago.