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Lower than expected the Japanese economy growth

The Japanese economy grew at a much slower pace than expected in the last quarter of 2013, a development that pose a challenge to the country’s politicians, as well as extensive government efforts to support the economy caused only a slight increase in consumption and exports. The Cabinet Office announced that Japan’s GDP grew 0.3% in the fourth quarter, well below forecasts, which on average were for an increase of 0.7%, after a corresponding increase of 0.3% the third quarter last year. This is the fourth consecutive quarter of growth, this is the best service for more than three years for the third largest economy in the world. Economists expect that growth will accelerate in the current quarter, as consumers will buy more goods before increasing the sales tax in April, but any new frustrations may increase the need for further monetary and fiscal support.

Japanese Yen

Japanese Yen

Export growth remained slow in recent quarters, partly reflecting lower demand from Asian markets and the transfer of factories of Japanese companies in offshore centers. The weak external sector is a source of concern for Japan, particularly as it has begun to wane dynamics caused by the unprecedented expansionary monetary and fiscal policies of Prime Minister Shinzo Abe. After decades of slow growth, during which China has displaced Japan since the position of the second largest economy in the world, Abe came to power in December 2012 with a bold plan to stop deflation and boost economic reforms. His policies, called Ampenomiks helped the Japanese economy to perform better in the first half of 2013 than many other countries of the Group of 7, but recent data raise doubts about the strategy of Abe.

Bank of Japan

Bank of Japan

The Japanese economy grew at a rate of 1% annually is less than the average estimate of 2.8% and 3.2% against the corresponding rate the U.S. economy. Private consumption, which accounts for 60% of GDP, grew by 0.5% in the fourth quarter of 2013 versus 0.7% in the average projected increase, indicating that the expected growth in demand before increasing the tax sales in April to 8% from 5% was not as strong. The disappointing figures for private consumption, private investment and exports were announced as the Bank of Japan met to consider the very loose monetary policy. Markets widely expect the central bank will maintain its current program to support the economy through bond purchases. The pressure, however, is likely to increase in the Bank of Japan and the Government to do more in the coming months, especially if the increase in sales tax in April proved more detrimental to growth than expected.

By Nicole P.

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