Japan's economy stalls in 2nd quarter in spite of stimulus

In the second April-June quarter, Japan's economic growth ground to a halt. There were weak exports and shaky demand domestically.

Japan's economy failed to grow on a quarterly basis during the April-June period, with gross domestic product (GDP) growth coming in at zero and missing already subdued forecasts.There will be even greater pressure for Premier Shinzo Abe to come up with policies that produce more sustainable growth. The economic stimulus is provided based on the premier's Abenomics:

 Abenomics is based upon "three arrows" of fiscal stimulus, monetary easing and structural reforms. The Economist characterized the program as a "mix of reflation, government spending and a growth strategy designed to jolt the economy out of suspended animation that has gripped it for more than two decades."

While the program produced an initial boost its effects appear to be fading rapidly. In January-March the economy had expanded by two percent. Senior Economist at Mizuho Securities, Norio Miyagawa said:"Overall it looks like the economy is stagnating. Consumer spending is weak, and the reason is low wage gains. There is a lot of uncertainty about overseas economies, and this is holding back capital expenditure. The government has already announced a big stimulus package, so the next question is how the Bank of Japan will respond after its comprehensive policy review, which is sure to lead to a delay in its price target."

Capital expenditure declined by 0.4 percent indicating that uncertainty over the global economy and weak domestic demand combined to discourage firms from new investments. Finance Minister, Taro Aso, said: "The breakdown of the data shows that gains in consumer spending lacked strength and exports fell a lot." The slowdown is happening just after an announcement by the government of a $133 billion new fiscal measures designed to boost the economy. The Bank of Japan (BOJ) also modestly increased its stimulus measures by increasing its purchase of risky assets. It is now under pressure to do more. The BOJ has been buying assets for 3 years now. The bank has already bought a third of the countries bonds.

Japanese Economy Minister, Nobuteru Ishihara, said: "Japan's economy is likely to achieve a recovery driven by private demand though the government must be mindful of risks such as slowing emerging market growth and uncertainty over the fate of Britain's exit from the European Union." Ishihara blamed earthquakes in April for a fall in tourism that weakened domestic demand. Some economists were not surprised at the result. Mark Jolley, of CCB International Securities said: "There's been quite a lot of strength in the yen, economic uncertainty and a bounce in oil prices, so it's not surprising that [Japan] is barely growing. That's been the average growth rate for the past five years. As long as Japan is growing between zero and one percent, that's a fabulous result. From the equity market's point of view, as long as you have broad stability in the economy, that will keep people reasonably comfortable with Japanese equities, so this [Monday's GDP data] is as good as you can expect."

The inflation target is 2 percent. Marcel Thieliant of Capital Economics said:"Inflation expectations remain poorly anchored, and the prospect of a prolonged period of below-target price gains raises the risk that expectations will move further away from the 2 percent inflation target. As such, we still expect the BOJ to announce additional stimulus measures at next month's meeting, though the scale of any further easing may turn out to be disappointing."

The Nikkei stock index was down slightly 0.2 percent after the data was released. The yen has risen 16 percent in relation to the US dollar this year making exports more expensive The value of the exports are also less when converted back to yen. Global demand is also weakening causing further declines in demands for export products.