Abe has staked his reputation on a policy blitz of fiscal spending, aggressive monetary policy easing and structural reforms — dubbed Abenomics — aimed at reviving the world’s third-largest economy.
Japan’s economy, once Asia’s biggest, has been overtaken by rival China, while it struggles with a challenging demographic outlook that is expected to see its population shrink by the tens of millions in coming decades.
Still, it boasts some of the world’s biggest companies, including in the automotive sector, and banks, and its domestic technology plays a key role in powering a wide array of global industries, including vehicles, electronics and high-end machinery.
But the Cabinet Office said today that gross domestic product (GDP) shrank 0.2 per cent in the July-September period, or an annualised contraction of 0.8 per cent, marking the second straight quarterly decline — considered a technical recession.
It was also below the 0.1 per cent forecast in a Bloomberg Newssurvey.
The economy contracted in 2014 after consumers tightened their belts following an increase in the country’s consumption tax, which put a dent in a nascent recovery.
That downturn spurred the Bank of Japan to sharply increase its already massive bond-buying programme, effectively printing money to spur lending.
In a bright sign, the government slightly improved its April-June data to a 0.2 per cent contraction from 0.3 per cent shrinkage previously estimated.
The latest figures will turn attention back to the BoJ ahead of a policy meeting this week to see whether it adds to its 80 trillion yen ($653 billion) annual stimulus programme.
‘Economy at standstill’
The data offer a mixed snapshot of the economy, with improving consumption countered by weakening corporate investment caused by uncertainty over the global outlook, particularly China, experts said.
“The real economy is at a standstill, even though other aspects of ‘Abenomics’ — corporate earnings and stock prices — are improving,” Taro Saito, director of economic research at NLI Research Institute, told AFP.
“Companies are reluctant to invest despite their sound profits,” he said, adding that while consumer spending improved its overall trend still remains weak.
Akira Amari, the government minister in charge of revitalising the economy, put a largely positive spin on the result, saying that the business climate is expected to recover gradually, citing rising wages as a bright factor.
But he openly voiced frustration towards businesses that have shied away from fresh investments.
“Having made record profits, with their equipment becoming older, what kind of business decision is it to still forgo investment?” Amari told a news conference.
Amari said the government was drafting an extra budget, not as a pure stimulus, but to offer social programmes and deal with the 12-nation Trans-Pacific Partnership free-trade deal.
He declined to discuss the size of the budget, however.
The benchmark Nikkei-225 stock index fell 1.04 per cent by the end of trade, with the Paris terror attacks adding to investor unease in Asia.
Still, analysts broadly expect the economy to pick up in coming quarters, with the BoJ seen further loosening monetary policy and Abe tipped to unveil fresh stimulus.
“Details are not as bad as the figures might suggest,” Junichi Makino, economist at SMBC Nikko Securities, said in a note, citing declines in inventories and increasing imports.
For technical reasons those results negatively affect GDP but can actually imply increasing demand.
But Marcel Thieliant, economist at Capital Economics, said any recovery should be viewed with caution.
“Looking ahead, the economy should start to recover this quarter, but we think that growth in the current fiscal year will be closer to 0.5 per cent rather than the 1.2 per cent projected by the Bank of Japan at its end-October meeting,” he wrote in a note to clients.
Thielient said he expected the BoJ to hold off further easing for now but expand it early next year.