Japan economy contracts for 2nd straight quarter

Tokyo stocks ended one percent lower Monday after data showed Japan’s economy slipped back into recession in July-September, while the deadly Paris terror attacks weighed on airline and travel stocks.

Waseda University Professor Hajime Tozaki, a former JAL employee, said the airlines must find a way to offset a decline in the number of business and leisure passengers to France, a key route to Europe for them. The inventory investment is the difference between goods produced (production) and goods sold (sales) in a given year.

A 1.3 per cent drop in business spending drove the worse than expected fall, which followed on from a revised second quarter contraction of 0.7 per cent.

A darkening outlook for global growth has put Japanese businesses on the defensive. The Topix stock index dropped 0.8 per cent in the morning session amid a broad-based decline in Asian share markets. It is the fifth time in seven years that the country has slid into a recession.

Japan has been in recession four times since the global financial crisis.

Many analysts expect the economy to grow only moderately in the current quarter as companies remain hesitant to use their record profits for wage hikes, underscoring the challenges premier Shinzo Abe faces in pulling Japan sustainably out of stagnation with his “Abenomics” stimulus policies.

Japan has been slipping in and out of such periods of contractions, while eking out growth in between.

The data are likely to provide fresh fodder for the Bank of Japan, the central bank, which has embarked on an aggressive bond-buying programme aimed at ending deflation and boosting growth. But it has struggled to approach its ambitious goals for lifting incomes, spending and investment.

“The Japanese economy came to a standstill, rather than entering a recession”, said Koya Miyamae, senior economist at SMBC Nikko Securities Inc.

Mr Abe’s government is working on a possible new spending package, according to Japanese media reports, which is expected to be worth about 3.5 trillion yen (S$40.4 billion).

“Two straight quarters of decline needs to be taken seriously”, Mr Sakakibara told reporters.

CHEAP YEN: A big boon to exports is the cheap yen, which lifts the value of overseas earnings. “We need a few kind of stimulus measures”.

The economics minister, Akira Amari, described the latest downturn as a temporary dip that belied broadly improving fundamentals. Furthermore, a few important elements of the economy have been notching up decent growth, including consumption, which rose at a 2.1% annual pace in the third quarter.