Japanese recovery stumbles

Growth slowdown hurts Prime Minister’s  attempts to shake off  20 years of deflation

Shinzo Abe’s plans to revive Japan suffered their first real setback yesterday as growth in the world’s third-biggest economy faltered.

The Japanese Prime Minister has embarked on a bold strategy to shake Japan out of a two-decade battle against deflation with a major public investment programme and money-printing from the Bank of Japan to hit a new  2 per cent inflation target.

But official figures showed Japan’s economy managed growth of just 0.6 per cent between April and June – slower than the previous quarter and below expectations. First-quarter growth was also revised lower and debt has passed the quadrillion – thousand trillion – yen (£6.7trn) mark as the nation seeks a strong enough recovery to begin tackling its borrowing burden, which is about 250 per cent of GDP.

The figures showed the strongest contribution to growth coming from public spending and exports as a much weaker yen boosts trading conditions and the value of overseas profits for Japan’s biggest companies such as Toyota and Honda. But business investment spending slipped back 0.1 per cent over the quarter, the sixth successive quarter of decline, which raises doubts over the recovery’s foundations.

Mr Abe also faces a fight to push through structural reforms to an overly bureaucratic economy – the so-called “third arrow” of his programme – through encouraging foreign investment, and boosting immigration to counter Japan’s ageing population.

Rob Wood, the chief UK economist at Berenberg, said: “If this is going to turn into something more lasting,  then Abe needs to encourage companies to put their massive cash piles to work by deregulating the economy and  improving the prospects for future growth. The economy needs serious structural reform because of the population issues, and the signs are it is not prepared for that.”

Mr Abe wants to double the amount of direct investment in Japan by foreign companies and open up trade, but he has pledged to protect the country’s heavily subsidised farming industry from which his Liberal Democratic Party draws strong support. He meanwhile faces a tricky decision over whether to go ahead with his planned rises in VAT next year to boost tax revenues, which could impact the recovery.

“With consumption the backbone of recent growth, that could pose challenges for Japan. Enacting the tax rise would damage growth, so discussions about whether to cancel the VAT increase have already started. But failure to enact the change could put into doubt the Prime Minister’s commitment to making the necessary painful reforms,” Mr Wood added.

The Bank of Japan’s governor Haruhiko Kuroda has said the tax increases are needed, and would not hurt the economy. However, Mr Abe is thought to be considering targeted tax-rate cuts, as well as a cut in corporate tax rates to boost business investment.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Sales Executive / Foreign Exchange Dealer - OTE £40,000+

£16000 - £40000 per annum: Recruitment Genius: A Foreign Exchange Dealer is re...

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

Day In a Page

Refugee crisis: David Cameron lowered the flag for the dead king of Saudi Arabia - will he do the same honour for little Aylan Kurdi?

Cameron lowered the flag for the dead king of Saudi Arabia...

But will he do the same honour for little Aylan Kurdi, asks Robert Fisk
Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Our leaders lack courage in this refugee crisis. We are shamed by our European neighbours

Humanity must be at the heart of politics, says Jeremy Corbyn
Joe Biden's 'tease tour': Could the US Vice-President be testing the water for a presidential run?

Joe Biden's 'tease tour'

Could the US Vice-President be testing the water for a presidential run?
Britain's 24-hour culture: With the 'leisured society' a distant dream we're working longer and less regular hours than ever

Britain's 24-hour culture

With the 'leisured society' a distant dream we're working longer and less regular hours than ever
Diplomacy board game: Treachery is the way to win - which makes it just like the real thing

The addictive nature of Diplomacy

Bullying, betrayal, aggression – it may be just a board game, but the family that plays Diplomacy may never look at each other in the same way again
Lady Chatterley's Lover: Racy underwear for fans of DH Lawrence's equally racy tome

Fashion: Ooh, Lady Chatterley!

Take inspiration from DH Lawrence's racy tome with equally racy underwear
8 best children's clocks

Tick-tock: 8 best children's clocks

Whether you’re teaching them to tell the time or putting the finishing touches to a nursery, there’s a ticker for that
Charlie Austin: Queens Park Rangers striker says ‘If the move is not right, I’m not going’

Charlie Austin: ‘If the move is not right, I’m not going’

After hitting 18 goals in the Premier League last season, the QPR striker was the great non-deal of transfer deadline day. But he says he'd preferred another shot at promotion
Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones