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Business Insight

Japan's GDP Shrinks

Yuri Ito

Finance leaders in Japan have been trying to drag the economy out of a long-term slump and put it firmly on a path to growth. They've just seen a new batch of figures that show the job could be even harder than many thought.

Cabinet Office officials have put out preliminary figures showing the economy shrank from April to June.

It's the first time in 3 quarters that growth has gone backwards. The officials say GDP contracted by 0.4 percent in real terms from the previous 3 months.

That works out to an annualized negative growth of 1.6 percent.

Leaders say the situation with Japan's top trading partner is a big factor.

"I understand there are concerns about China. People are worried its economy may affect not only the domestic situation but the economic outlook for the entire world. We'll be looking closely at how the Chinese government responds."
Akira Amari / Japanese Economic Revitalization Minister

Government officials say there's another reason for Japan's slowing momentum.

People are enjoying better job prospects and earnings, but they remain reluctant to spend. Retail sales were down 0.8 percent for the quarter. The officials say the drop is due to higher prices for food and other daily necessities.

Car dealers have sold fewer vehicles for seven months straight. Many blame increases in the consumption tax and light vehicle tax. They say that it's had a lasting impact on the mindset of Japanese consumers.

One expert says it's hard to say when things will get better.

"To be honest, the budget mindset that we're seeing is much more persistent than I expected. Wages are up, but can we really convince people to loosen their purse strings when they've tightened them so much? There are so many uncertainties that it's very difficult to predict what's going to happen next."
Yoshiki Shinke / Chief Economist, Dai-ichi Life Research Institute

People in Japan have watched their leaders go all-out to turn things around with fiscal stimulus and monetary easing. Consumers have recently benefited from lower oil prices, too. But analysts say the risk from China and weak spending show leaders need to try something new to drive consistent growth.

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