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Japanese economy shrinks in second quarter

The Japan News
08 Sep 2014, 14:30 GMT+10

TOKYO, Japan - The Japanese economy shrank far more than expected in the three months to June, contracting 7.1% in terms of GDP compared to the same period last year, which has been widely blamed on a hike in the nation's sales tax, which rose from 5% to 8% in April.

In quarterly terms, the situation was less dire, with the economy seeing a contraction for the three months to June of 1.8%, erasing the 1.5% of growth in the first quarter that ended in March.

Private consumption makes up 60% of the economic activity in Japan, which is the world's third-largest economy and Japanese consumers were reported to have spent more in the first quarter than the second, largely as a result of the new sales tax, which impacted GDP.

Economists have also pointed out that consumers spent more in the previous quarter ahead of the introduction of the sales tax, which inflated figures for the first quarter with which the second quarter couldn't keep up.

In July, official data also showed that factory production didn't grow at all, putting pressure on the government to introduce even more reforms.

Japan's economy minister Akira Amari said on Friday that the nation was ready to introduce a stimulus package, but investor's hopes of significant growth were dashed as he indicated that the stimulus package would be intended to mitigate the effects of a further tax hike.

Japanese Prime Minister Shinzo Abe is expected to make a decision in December regarding raising the sales tax to 10% for October next year. At the beginning of September he announced a government re-shuffle, signaling his determination to get the economy back on track by the end of the year.

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