Japan's Economy Shrinks Annualized 1.6% in Second Quarter
20:04 ET
TOKYO -- Japan's economy contracted in the second quarter as households spent less and demand for Japanese goods overseas slumped, raising the possibility the government will intervene to shore up the nation's anemic recovery.
Japan's gross domestic product shrank 1.6% on an annualized basis in the April-June quarter, according to data released on Monday by the Cabinet Office. That compared with a 1.9% contraction forecast by economists surveyed by The Wall Street Journal .
Monday's data showed that despite efforts by Prime Minister Shinzo Abe and the Bank of Japan to encourage growth in the world's third-largest economy, a sustainable recovery remains elusive.
The weak figures could spur calls for an economic-stimulus package toward the end of the year.
The slump was due largely to a 0.8% fall from the prior quarter in private consumption, which accounts for more than half of economic output in Japan . Economists have said households likely spent less as wage increases have failed to keep up with higher prices after the national sales tax rose to 8% from 5% in April 2014 .
"The overall market trend has been that ever since the consumption tax rose, sales have been on the decline and we haven't been able to shake off that impact," said Honda Motor Co. Executive Vice President Tetsuo Iwamura on July 31 . Honda's April-June car-sales volume in Japan fell 27%.
Also, demand for Japanese goods overseas faltered, especially from Asia . External demand detracted 0.3 percentage point from GDP growth in the quarter.
"Falling resource prices due to weak demand in China are having an impact on our business like a body blow," said Kengo Matsubara , chief financial officer at Japan's second-largest trading house, Mitsui & Co. , earlier in August.
Economists said Japan's economy should pick up in the second half of the year as wage increases spur household spending, companies spend more on business investment and stronger growth in the U.S. fuels exports.
According to an August survey of 40 economists by the Japan Center for Economic Research , Japan's economy should grow by about an annualized 2.5% in the July-September quarter.
Write to Eleanor Warnock at eleanor.warnock@wsj.com and Mitsuru Obe at mitsuru.obe@wsj.com
(END) Dow Jones Newswires
08-16-15 2004ET
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