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August 16, 2010    

Japanese recovery loses momentum as Q2 growth slows

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by Kay Murchie
Japanese recovery loses momentum as Q2 growth slows

Official figures have today revealed Japanese economic growth slowed in the April to June period, as widely expected.

The economy expanded by just 0.1% in the three month period - far less than expected by analysts.

Meanwhile, on an annual basis, the economy grew by 0.4% in the quarter, down from a revised 4.4% in the previous three months and again missing forecasts of 2.3%.

Japan fell into a severe recession following the global financial crisis but was one of the first major economies to emerge from recession – in the second quarter of 2009 – boosted by exports.

However, demand for exports has weakened – due to a stronger yen. The latest figures from the Japanese finance ministry revealed exports continued to rise in June, albeit at a slower pace.

Exports grew 27.7% to 5.87 trillion yen in June – the seventh straight monthly rise. However, not only did the figure fall short of expectations of a 23.1% rise, it was also below May’s increase of 32.1%.

Meanwhile, the yen hit a 15-year high against the US dollar last week – fuelling concerns about the impact on exporters.

Furthermore, the economy continues to battle with deflation.

Deflation (where prices fall rather than increase) can be a serious threat to an economy because it deters consumers and businesses from spending in expectation of falling prices.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s in which the economy struggled with falling prices.

Meanwhile, today’s figures will present a challenge for the Japanese Government, which also needs to focus on reducing the economy’s debt, which at nearly 230% of GDP is the highest of any industrialised nation.

The debt is the result of decades of stimulus spending and low tax receipts.

Japan’s Prime Minister, Naoto Kan, has warned of tough measures in order to reduce the debt mountain – or risk a Greece-style debt crisis.

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