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Japan Posts Negative Growth

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Consumers across Japan have been holding onto their money. They've spent less since the government raised the consumption tax in April. And their penny-pinching has held back the economy.
Government officials are reporting negative growth. It's the sharpest decline since the first quarter of 2011, when the earthquake and tsunami hit northeastern Japan.

The officials have compiled the numbers for the April to June period.
They say, in real terms, GDP was minus 1.7 percent compared from the previous quarter. That translates to an annualized growth rate of minus 6.8 percent.

By category, consumer spending plunged 5 percent. People had rushed out to buy big-ticket items such as cars and home appliances, before Prime Minister Shinzo Abe hiked the consumption tax from 5 to 8 percent. But consumer's spending appetite has since faded.

As for capital investment, that dropped 2.5 percent. Business managers tightened their budgets, after upgrading their computer systems.
Those moves came after Microsoft stopped supporting its Windows XP operating system.

Store managers across Japan are wondering when their customers will come back. Some worry that could take a while. More from NHK WORLD's Kyoko Fujita.

Consumers have become more frugal in recent months. They're forking out less on everything big and small. Shoppers across Japan are keeping a tight grip on their wallets. They're spending less on all kinds of things...even their pets.

Managers at one pet food business say their sales have slumped. They say, between April and June, they sold 15% less than in the same period last year.

The managers say many of their customers bought supplies in bulk before the tax went up. And they blame a 20 percent increase in the cost of raw materials for making things worse. They had no choice but to lift their prices. And that's turned many pet owners away.

"I try to find cheaper items and stock up."

"The impact of the tax hike has continued for much longer than we expected. We're hoping sales will start to recover in late autumn."
Naoya Kajihara / Nippon Pet Food

Consumers are also holding off on bigger purchases. Many have given up on their dreams of owning a house.

Builders say that's put a dent in their business. They say, for four months straight, they've had less work than last year. They also blame a shortage of workers for forcing up their production costs.

"I want a new house, but it's expensive. I'm also thinking of buying a pre-owned apartment."

Managers at some firms are trying a different tack to lift their sales. They're promoting homes with in-law suites.

They say people have a better chance of affording a house if they can share the cost with their parents.

"We think we'll be still struggling for a while longer this year. We hope we can draw up plans for our customers to make houses easier to buy."
Takehito Kajiro / Asahikasei homes

One expert says the hangover from the tax hike could be harder to shake off than he had expected.

"Consumer purchasing power has weakened, so the pace of recovery could be slow. Stocks of cars and machinery are piling up. So, manufacturers might reduce their production, and that could lead to a vicious cycle for the entire economy."
Hidenobu Tokuda / Mizuho Research Institute, Senior Economist

Prime Minister Abe is expected to decide by the end of the year whether he'll raise the tax in 2015 to 10 percent. But before then, he'll need to prove the initial increase worked and give consumers the confidence to start spending again.



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