Japan’s Record GDP Plunge Is Slightly Worse on Revision

Japan’s record economic contraction last quarter was slightly worse than initially estimated, according to revised figures that underscore the challenge facing Prime Minister Shinzo Abe’s replacement as the country tries to dig itself out of its coronavirus slump.

Gross domestic product shrank an annualized 28.1% from the previous quarter in the three months through June, a little worse than the initial estimate of a 27.8% fall, the Cabinet Office reported Tuesday. A steeper fall in business investment accounted for most of the change. Economists had forecast an overall 28.5% contraction.

A separate report showed declines in household spending steepening in July, falling 7.6% below last year’s level as consumers cut back on travel and eating out amid a spike in virus cases that has since eased somewhat.

Confirmation of Japan’s biggest GDP slide in records going back to 1955 comes as the ruling party prepares to pick a new prime minister following the shock resignation last month of Shinzo Abe, the country’s longest-serving premier. Abe’s most likely successor, longtime aide Yoshihide Suga, faces the tough balancing act of trying to contain the virus without stifling the economy.

Key Insights

  • “The next prime minister will have to set coronavirus measures as the first priority,” said economist Masaki Kuwahara at Nomura Securities Co. “The economy should see a double-digit rebound, but the recovery pace will be slow.”
  • The Bank of Japan is likely to raise its economic assessment at next week’s meeting to indicate that Japan’s slump has bottomed, without expressing optimism about the outlook,people familiar with the matter said. Still, BOJ officials see little need to take further policy action now because financial markets are stable and companies have access to credit, the people said.
  • Suga, the current chief cabinet secretary, would be a continuity pick. He wants to stick to the Abenomics path that includes massive monetary stimulus and a flexible spending approach, but would also take more action if needed to save jobs.
  • Analysts see GDP rebounding about 13% this quarter, not enough to make up for three straight quarters of contraction. Bloomberg Economicsargues the economy may never regain its pre-pandemic size because the crisis has further delayed critical reforms needed before Japan’s shrinking population causes longer-term declines.

What Bloomberg’s Economist Says

“We expect a return to growth in 3Q. But it is still on track for a deep slump for the full year, even with massive policy support from the government and central bank.”

–Yuki Masujima, economist

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  • Business investment fell 4.7% from the previous quarter, revised down from an initial estimate of -1.5%.
  • A separate report showed cash earnings dropped 1.3% in July from a year earlier. Economists had predicted a 1.5% decrease.
  • Adjusted for inflation, wages slid 1.6%. Analysts projected a 1.9% decline.

— With assistance by Tomoko Sato, Yoshiaki Nohara, and Keiko Ujikane

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