Japanese Economy Contracts More than Anticipated

The economy in Japan shrank more that was expected during the last quarter of 2015 as spending by consumers and exports slumped, adding to policymaker headaches already  wary from damage the rout in the financial market could inflict upon an already fragile recover.

Japan’s gross domestic product shrank by 1.4% on an annualized basis for the period from October through December, bigger than a forecast by the market for a decline of 1.2% and matching a drop in the 2015 second quarter.

The previous quarter ended with a revised increase of 1.3%. The data highlights the challenges that Shinzo Abe the prime minster is facing trying to drag out the third largest world economy from stagnation, as the exports to emerging markets did not gain sufficient momentum to compensate for the soft demand domestically.

Abe had sought to reassure that Tokyo was ready to stem the excessive volatility in the market that could undermine the effect of wealth delivered by his policies pertaining to stimulus.

As we agreed at G20 and G7, sudden moves in currency are not desired. I want the minister of finance to monitor closely the situation and to respond with the measures that are appropriate, Abe told his parliament.

A chief economist in Japan said that private consumption was very weak and the economy has come to a standstill.

The economist added that it is just a matter of time before the Bank of Japan and its government take more stimulus actions, predicting that the central bank would ease its policy against as soon as the next month.

With Abe’s stimulus policies that gave huge manufacturers even bigger profits, Abe hoped to generate a positive cycle where companies would raise wages to help and boost spending by households.

Instead, data showed private consumption, which represents 60% of the country’s GDP dropped by 0.8%, which exceeded the forecasts of the market for a drop of 0.6%.

Abe came into power three years ago, and since then private consumption has contracted by close to 1.5 trillion yen to just over 306.5 trillion yen or $2.7 trillion.

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