Japan economy's contraction a blow for 'Abenomics'

TOKYO: Japan's economy contracted last quarter, official data showed Monday, boosting speculation the central bank will be forced to unleash more stimulus as Tokyo's "Abenomics" growth blitz stumbles.

The world's third-largest economy shrank 0.4 percent in the three months to June -- or 1.6 percent on a yearly basis -- due to weak consumer spending at home and slowing exports, after two consecutive quarters of expansion.

Still, the figures published by the Cabinet Office came in slightly better than market expectations for a fall of 0.5 percent, or a 1.8 percent annualised drop.

Private consumption, which accounts for about 60 percent of Japan's GDP, fell 0.8 percent from the previous quarter while exports dropped 4.4 percent.

"The sharp plunge from the previous quarter's surprise growth was partly due to disappointing demand for Japanese products in the US, Chinese and other" markets, SMBC Nikko Securities said in a commentary.

"Sluggish wage growth and bad weather drove down consumption at home," it added.

The downturn follows stronger-than-expected growth in the first quarter driven by a pickup in capital spending, with Japanese firms generally reporting upbeat profits.

Japan on Monday revised up its reading for the January-March period for the second time to a 1.1 percent expansion, sharply higher than an initial estimate of 0.6 percent growth.

"Corporate earnings are strong -- leading indicators show upward movement for both machinery and construction investment," said Credit Suisse economist Hiromichi Shirakawa.

But as more tepid second-quarter data started to roll in some economists had warned that Japan's recovery was going to be wobbly, with an inventory buildup taking a toll on factory output.

News of the slowdown comes more than two years after Prime Minister Shinzo Abe launched a policy blitz, dubbed Abenomics, to kickstart anaemic growth and conquer years of deflation.

The programme called for big government spending, massive Bank of Japan (BoJ) monetary easing and reforms to cut red tape in Japan's highly regulated economy -- reforms that have stalled, however.