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Japan GDP shrinks 2nd quarter in a row

Analysts were expecting the economy to recover slightly, after plunging in the previous quarter. So they were surprised to see the economy shrink again. They thought they would see better numbers in housing and in corporate spending. Cabinet Office officials say the economy contracted in the July-to-September period.

The officials released preliminary data showing Japan's GDP fell zero-point-4 percent in the 3 months to September in real terms from the previous quarter. That translates to an annual downturn of 1-point-6 percent. The latest GDP data follow a 7.3 percent plunge on an annualized basis in the April-to-June period.

Personal spending grew just 0.4 percent. The impact of the consumption tax hike in April faded. But higher prices and cooler weather in summer made people reluctant to spend money.

But the hike in the sales tax dampened demand for big ticket items. And housing investment plunged 6.7 percent. Corporate capital investment shrank 0.2 percent.

Government officials have been trying to boost consumer spending.
But the latest data show sluggish personal consumption is having a dampening effect on the economy. NHK WORLD's Daisuke Azuma reports on why people in Japan are reluctant to spend money... and what retailers are doing to attract customers.

Many Japanese automakers racked up record profits in their midterm earnings reports. But dealers say sales are sluggish.

"Many customers are reluctant to make the decision to buy a new car."
Koji Kimura / Car dealer

Stock prices have been rising and the yen has been falling in value. Many big Japanese companies have seen their profits spike.

Wages have risen by an average of more than 2 percent this year. That's the highest rate in 10 years. But if inflation is factored in, real wages have been falling for the past year.

Officials at this department store say this trend is affecting purchases of seasonal gifts. The focus of their summer sales campaign was on items priced around 5-thousand Yen, or 50 dollars. But many customers this year chose less expensive items.

"I don't have much disposable income. So I need to be careful when I'm buying year-end gifts."
Female Customer

"The price range people were going for was less than we expected. So we decided to change our strategy."
Koji Asakawa / Daimaru Matsuzakaya

The store has cut prices by about 20 percent on a range of popular, year-end gift items..

They are pushing products in the 40-dollar price range.

The gift packages look the same, but store managers are keeping prices down by cutting back on what's inside.

Yet, store officials say sales of goods in higher price ranges such as 100 dollars or more are also increasing. They say consumers have become polarized into two camps.

"I care more about the content of the gifts rather than the price."
male Customer

"Some prioritize quality over quantity. Others just want to save money. We want to cater to both groups by focusing on certain price ranges."
Koji Asakawa / Daimaru Matsuzakaya Department Stores

Some economists say if the polarization spreads, it's unlikely that we'll see a strong recovery in consumer spending.

"Expanding wealth from the stock market is important. But if we don't stimulate consumption of daily necessities, the pace of recovery in spending will continue to be weak."
Yusuke Shimoda / Economist, Japan Research Institute

The GDP result for this quarter has highlighted a problem that won't go away. Efforts to revive consumer spending have so far had little impact So, government officials need a new plan of action.

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