Japan’s economic growth slowed to a crawl in the second quarter and analysts see more weakness ahead, adding to policymakers’ headaches as they grapple with deflation and a rise in the yen that threatens an export-reliant recovery.Slowing growth in main export destinations such as the United States and China clouds the outlook, while policymakers are trying hard to talk down the yen after it surged to a 15-year high against the dollar last week.
Japan’s quarterly gross domestic product growth of 0.1 percent translates to annualised expansion of 0.4 percent, well below the median market forecast of 2.3 percent and the United States’ 2.4 percent annualized growth in the same quarter.
That followed revised 4.4 percent annualized growth in the first quarter, when both exports and a stimulus-driven recovery in consumption contributed to overall growth.
In the April-June quarter the stimulus effects have worn off, leaving exports as the sole engine of growth and with its contribution to growth halved to 0.3 percent, the economy just eked out a third straight quarter of expansion.
Prime Minister Naoto Kan and Bank of Japan Governor Masaaki Shirakawa are expected to meet later this week to discuss the yen’s strength and possible responses, although analysts said there is not much they can do.
“I think the Bank of Japan and the government need to take decisive action against currency moves. Solo currency intervention is possible if the yen approaches 80 to the dollar. If that is accompanied by monetary easing by the Bank of Japan, it may have a certain effect,” said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo