Japan's economy contracts 0.3%

Japan's economy contracted less than initially thought in the last quarter of 2015, revised data showed Tuesday, as corporate spending picked up, although the outlook for this year remained bleak.

The Cabinet Office said gross domestic product shrank 0.3 percent in October-December period, not quite as bad as an original estimate of a 0.4 percent contraction.

The new figures mean that the world's number three economy expanded 0.5 percent through 2015, against an earlier 0.4 percent estimate.

But the modest changes offer little in the way of hope for Prime Minister Shinzo Abe's faltering bid to put Japan on a firm recovery path.

The weak data also boost the chances of more easing measures from the Bank of Japan to prop up the economy. The central bank holds a policy meeting next week.

"With the early indications for (the first quarter) not looking promising, we retain our view that the Bank of Japan will announce more easing next week," said Marcel Thieliant from research house Capital Economics.
The latest GDP figures point to an uptick in business spending and exports, but spending by shoppers at home remains weak with firms reluctant to boost salaries.

The lack of spending is a big hurdle for Tokyo's growth bid and the central bank's efforts to stoke lasting inflation.

"Wage growth is still feeble, while food prices are going up, so households are cautious," said Junichi Makino, chief economist at SMBC Nikko Securities.

"We cannot take a positive view (on the revised data)... There is no change to our outlook that the economy is stagnant."

In January, the Bank of Japan shocked markets by resorting to an unprecedented negative interest rate policy, which aims to boost lending by penalising banks for storing excess reserves in the BoJ's vaults.
The move was widely panned as a desperate bid to counter Japan's slowdown after earlier monetary easing efforts failed to cement a sustained recovery in the economy.

Analysts said the BoJ next week could lower rates further into negative territory and step up the pace of their assets purchases -- both aimed at injecting life into the limp economy.

With his growth programme limping along and the BoJ struggling to hit its ambitious two-percent inflation target, Abe must decide whether to follow through with another sales tax hike next year.

The rise is seen as crucial to containing Japan's massive national debt, but it could dent consumer spending and hurt an already fragile economy. A consumption tax hike in 2014 pushed Japan into a brief recession.

Abe's programme was also shaken by the bloodbath on equity markets at the start of this year and a resurgent yen, which threatened to dent companies' overseas profits.
Source: AFP