Japan’s economy shrinks more than expected in Q2, heightens woes for new leader

Asia Business World

TOKYO: Japan’s economy shrank more than initially estimated in the second quarter as capital expenditure took a hit from the coronavirus crisis, highlighting the challenge policymakers face in averting a deeper recession.

Other data put that challenge in perspective, with household spending and wages falling in July as the broadening impact of the COVID-19 pandemic kept consumption frail even after lock-down measures were lifted in May.

The data underscored the daunting task the new prime minister, to be elected in a ruling party leadership race on Sep 14, faces in seeking to contain the pandemic while avoiding restrictions on business activity.

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The world’s third-largest economy shrank an annualised 28.1 per cent in April-June, more than a preliminary reading of a 27.8 per cent contraction, revised gross domestic product (GDP) data showed on Tuesday, suffering its worst postwar contraction.

The record drop roughly matched a median market forecast of a 28.6 per cent contraction in a Reuters poll.

The main culprit behind the revision was a 4.7 per cent drop in capital expenditure, a much bigger fall than a preliminary 1.5 per cent fall, a sign the COVID-19 pandemic was hitting broader sectors of the economy.

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Separate data showed household spending fell 7.6 per cent in July compared with a year earlier, more than a median market forecast for a 3.7 per cent decline.

Real wages also fell for the fifth straight month in July, other government data showed, pointing to possible deeper strains ahead for consumer spending.

The fresh batch of data will be among key factors the Bank of Japan will scrutinise at its rate review next week, when it is widely expected to keep monetary settings unchanged.

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