Shrinking GDP – Abenomics to the rescue?

Japan’s economy unexpectedly shrank last quarter as falling exports and a business investment slump outweighed improved consumption, bolstering Prime Minister Shinzo Abe’s case for more monetary stimulus to end deflation.

Gross domestic product contracted an annualized 0.4 percent, following a revised 3.8 percent fall in the previous quarter, the Cabinet Office said in Tokyo today. The median forecast of 32 economists surveyed by Bloomberg News was for 0.4 percent growth. Nominal GDP shrank 0.4 percent on quarter.

The prolonging of Japan’s recession into a third quarter shows that benefits from a weaker yen and rising stocks have yet to be felt. With the lower house of Parliament passing Abe’s fiscal stimulus package today, Bank of Japan Governor Masaaki Shirakawa and his colleagues raised their assessment for the economy, as they left monetary policy unchanged.

The yen snapped a two-day advance today after Kazumasa Iwata, a former BOJ Deputy Governor who is a possible candidate to replace Shirakawa, said in a statement ahead of a meeting with ruling party lawmakers that a level around 90-100 per dollar would be a return to equilibrium. The currency was 0.2 percent weaker at 93.55 as of 3:38 p.m. in Tokyo, while the Nikkei 225 Stock Average closed up 0.5 percent.


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