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Japan cuts Q2 GDP on weak spending; wages slide

TOKYO – Japan’s economy grew less than initially estimated in the second quarter and wages slumped in July, casting doubt over central bank projections that solid domestic demand will keep the country on course for a recovery.

Capital expenditure and private consumption both fell in the April to June period, revised gross domestic product (GDP) data showed on Friday, underscoring the fragile state of Japan’s economy, which is already facing headwinds from weakening Chinese and US growth.

Real wages adjusted for inflation fell in July for a 16th straight month in a sign that households continued to feel the pinch from rising prices, separate data showed, boding ill for consumption.

“Weak exports to China may be making Japanese manufacturers cautious about investing. The hope is that services-sector firms will pick up the slack, though sluggish consumption could discourage them to spend money too,” said Norinchukin Research Institute chief economist Takeshi Minami.

Japan’s economy grew an annualised 4.8 per cent in the April to June period, the revised data showed, down from a preliminary estimate of 6 per cent growth and below market forecasts of a revised 5.5 per cent expansion.

The main factor behind the downgrade was a 1 per cent drop in capital expenditure, compared with a preliminary flat reading, casting doubt on the Bank of Japan’s (BOJ) view that robust corporate spending will underpin Japan’s post-pandemic economy.

The revised decline was bigger than a median market forecast for a 0.7 per cent fall.

Private consumption, which makes up more than half of the economy, fell 0.6 per cent quarter on quarter in the April to June period, compared with a preliminary 0.5 per cent decline.

Exports remained solid in the period with net external demand contributing 1.8 percentage points to GDP growth, unchanged from the preliminary reading.

But shipments to China slumped 13.4 per cent in July to mark the 8th straight month of falls.

Overall exports slid 5 per cent year on year in the first half of August after a 0.3 per cent decline in July, suggesting the global slowdown was taking a toll on the economy.

As weak domestic demand led to declines in imports, Japan’s current account surplus logged a record amount for the month of July, separate data released on Friday showed.

“I won’t be surprised if Japan suffers two straight quarters of contraction during the rest of this year,” said Mr Minami of Norinchukin.

“The chance of an early end to ultra-loose monetary policy is diminishing.”

Japan’s economy has seen a delayed recovery from the Covid-19 pandemic in 2023, as rising living costs and faltering global demand cloud the outlook.

Given such uncertainties, BOJ policymakers have stressed their resolve to keep monetary policy ultra-loose until the recent cost-driven inflation turns into price rises driven by domestic demand and higher wage growth. REUTERS

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