Japan's economic soft spot may continue, fear experts

Tokyo: Japan's economy slipping into a technical recession for the second time since Prime Minister Shinzo Abe came to office has led some analysts to question the efficacy of his aggressive blend of economic policies dubbed "Abenomics" and see the soft spot continuing unless economic fundamentals are swiftly addressed.

Japan's economy contracted in the third quarter owing to waning business investment and slumping inventories, the government said, with the 0.8 percent contraction in the July-September quarter of 2015 marking a second straight quarterly contraction, following a revised 0.7 drop in the second quarter, Xinhua reported.

The world's third-largest economy once again entering a recession comes as a blow to Abe and his economic policies, particularly in light of the fact that the prime minister has, since his return to office in 2012, pledged to rescue the nation from the doldrums of recession.

He promised the return of Japan to its former economic glory, before it became mired in decades of deflationary pressure and had piled up public debt amounting to twice the size of the nation's GDP and the highest for an industrialised nation.

Economists said the latest GDP figures released on Monday came in below market expectations and, in fact, mark the fifth time Japan has been in a recession since the global financial crisis of 2008.

They highlighted the fact that despite both exports and consumption showing an uptick in the latest recording period, businesses here still remain circumspect, as evidenced by negligible wage increases and falling investments, despite a number of major blue chips and mid-sized companies netting record profits in the last quarter.

"The stock market may have been buoyed by 'Abenomics' and the yen has weakened which has given major exporters who rely on overseas profits a boost, but incomes, spending and investment remain areas that haven't been addressed by the government's policies," said Akihiro Hoshino, a senior quantitative strategist at Nomura Holdings Inc.

"One of the major reasons for the contraction was because businesses are not investing, in a sign that they are not content with current conditions, as recent data has proved, and till more stimulus measures are unveiled the situation here will remain, at best, tepid," Hoshino said.

The chairman of the Japan Business Federation, country's most influential corporate lobby group, Sadayuki Sakakibara, said on Monday that it was now time for further official measures to be introduced to shore up the economy.

"Two straight quarters of decline needs to be taken seriously. The biggest issue is policies to lift growth. We need some kind of stimulus measures," Sakakibara said, referring to a new spending package by the government, slated to be in the region of 3.5 trillion yen ($28.37 billion).

Other economists also pointed out the need for measures to be taken to increase spending and growth, particularly in light of the prime minister's own GDP target and against a backdrop of slowing economies in the region and Japan's demographic situation.

Mari Iwashita, chief market economist at SMBC Friend Securities said that because Monday's GDP data revealed that consumer spending had improved, the negative GDP reading would not prompt the BOJ to act now.

Other economists have painted an even bleaker picture, with Izumi Devalier, an economist at HSBC Holdings Inc., maintaining that even if the bank did roll out additional easing measures, it would not be enough to reverse the decline in capital expenditure marked in the third quarter.

"If record high corporate profits and yen weakness aren't enough to get corporates to invest in Japan, there are clearly deeper-seated forces at work, involving concerns over the country's declining long-term growth potential and increased competition abroad. Another round of quantitative easing is not going to change this," Devalier said.