• Japan economy returns to growth in Q1

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    TOKYO: Japan has sidestepped a recession with modest first-quarter growth, preliminary data showed Wednesday, but the reading underscored how Tokyo’s drive for a firm recovery in the world’s number three economy is not gaining traction.

    The country’s gross domestic product expanded by 0.4 percent between January and March—or 1.7 percent at an annualized rate—after a contraction in the last three months of 2015.

    A consumer spending rebound helped drive the better-than-expected figures, but the leap year added another day of production—and spending—to the economy’s performance.

    The fresh data will do little to buoy hopes for Prime Minister Shinzo Abe’s faltering growth blitz.

    His bid to revive Japan’s once-soaring economy, dubbed Abenomics, was shaken by a bloodbath on equity markets at the start of the year and a resurgent yen which has taken a bite out of Japan Inc.’s profits.

    The latest GDP figures will throw a renewed focus on plans to raise Japan’s consumption tax again.

    Local media have suggested Abe will delay hiking the levy over concerns it could damage the already fragile economy.

    A tax rise in 2014—seen as key to helping pay down Japan’s enormous national debt—was blamed for ushering in a brief recession.

    This week, the government approved a 778 billion yen ($7.1 billion) extra budget in response to April’s deadly earthquakes, which prompted factory shutdowns in southern Japan.

    “But even if the government delays the tax hike, it still needs to set a course for getting public finances on a sound footing, which is not an easy job,” said Yoko Takeda, chief economist at Mitsubishi Research Institute.

    “The economy is in a tough situation with the strong yen hurting corporate earnings, stalled wages and a lack of confidence among consumers. There are going to be some tough times ahead.”

    Wednesday’s figures came days before Japan hosts a meeting of the Group of Seven finance chiefs and a summit of their leaders next week.

    The finance group—including US Treasury Secretary Jack Lew and European Central Bank President Mario Draghi—converge at a hot spring town north of Tokyo where two days of meetings kick off on Friday.

    Fading confidence
    Topping the agenda will be how the group of rich nations can help kickstart global growth, as host Japan struggles to light a fire under its own economy.

    Abe’s growth plan—big government spending, central bank monetary easing and reforms to the highly regulated economy—appeared to bear fruit at first, after he was ushered into power in late 2012 elections.

    The yen weakened sharply, which boosted Japanese exporters’ profits and sparked a huge stock market rally.

    But sustained growth has been elusive and Abe’s efforts to overhaul the economy have been widely criticized as half-hearted.

    Key to the plan is a massive monetary easing campaign from the Bank of Japan aimed at dragging Japan out of years of deflation—a spiral of falling prices that held back growth.

    In January, the central bank shocked markets with a negative rate policy, which was designed to boost lending to people and businesses, but the move was widely criticized as a desperate bid to prop up Tokyo’s faltering economic plan.

    The uptick in demand for durable goods such as cars and household appliances is good news, but the GDP figures suggest the BoJ’s rate policy was having little impact on the economy, said Shotaro Kugo, an economist at Daiwa Institute of Research.

    AFP

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