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August 29, 2015

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Japan GDP yet to escape the doldrums

THE backdrop to the wild drama in financial markets over the past few weeks is a less dramatic but more daunting reality: the deep-seated challenges for sustaining long-term growth, especially for aging economies like Japan’s.

Japan released data yesterday showing its economy has yet to escape the doldrums more than two years after Prime Minister Shinzo Abe launched an unprecedented effort to jolt the country out of its deflationary rut.

Core inflation excluding volatile food prices flat-lined at its lowest level in more than two years in July and household spending also slowed, the government reported.

Unemployment fell to 3.3 percent and household incomes rose 5.4 percent in real terms, thanks largely to semi-annual bonus payments. Such trends are leading economists to forecast the economy will return to expansion after a 1.6 percent decline in annual terms in April-June.

But the middling vital signs, and worries over China’s ability to stoke its own growth, may raise pressure on the Bank of Japan to up its unprecedented barrage of monetary stimulus.

The BOJ is spending trillions of yen a month on asset purchases meant to push inflation higher and end years of deflation, or chronic price falls.

The aim is to get consumers and businesses to spend more money and spur growth, but so far the inflation rate remains far from the official 2 percent target, and the spending that accounts for most of Japan’s economic activity has remained lackluster despite modest rise in some workers’ wages.

It is unclear if the recent gyrations in share prices will have a spillover effect on spending.

The Nikkei 225 stock index climbed 2.8 percent yesterday, though it was still down over 6 percent for the week.

BOJ Governor Haruhiko Kuroda said in a speech to the Japan Society in New York this week that the bank is keeping a close eye on potential risks and will “make adjustments without hesitation as necessary.”


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