Japanese economy continues to struggle

| September 9, 2011

The Cabinet Office has today revealed the world’s third largest economy performed worse than originally thought in the April to June period.

Gross Domestic Product (GDP) contracted by 2.1% on an annual basis in the three-month period, compared with an initial estimate of 1.3%.

The fall was attributed to a cut back on spending by companies amid concerns about a slowing global economy and a strong yen.

Earlier this week, Japanese Finance Minister, Jun Azumi, said he will discuss the threat of the strong yen at the G7 meeting in Marseille, France today.

Meanwhile, figures released today revealed overall investment by businesses fell by 0.9% in the quarter, against 0.2% rise estimated previously.

The economy is currently in recession and has now contracted for three consecutive quarters.

The economy continues to recover from the devastating earthquake and tsunami which struck in March.

A strong yen continues to hurt Japanese manufacturers. Furthermore, the twin disasters disrupted supply chains and forced some of Japan’s largest exporters to halt production.

Exports helped the economy recover from recession earlier than its counterparts two years ago but recent figures have shown exports are slowing.

Yesterday, the Organisation for Economic Cooperation and Development (OECD) said Japan could see economic growth of 4.1% in quarter three but will see zero growth in the final quarter.

However, despite today’s poor figures, which were in line with expectations, economists are optimistic about the future prospects.

Government stimulus spending is expected to boost the recovery efforts in north-eastern Japan, while consumer spending will lead to expansion in the next quarter.

Japan lost its place as the world’s second largest economy to China last year and it faces several headwinds including years of deflation and a mountain of debt.

Debt currently stands at almost twice the country’s annual economic output and is the highest of any industrialised nation.

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