Japan's Economy Shrinks For Third Straight Quarter

The Japanese economy shrank 0.3 percent in the second quarter of this year from the preceding quarter, or at an annualized pace of 1.3 percent, in real terms, the government said in a preliminary report on Monday.

But the rate of GDP decline in the world's third-largest economy in the April-June quarter was lower than many analysts had forecast.

It was the third consecutive quarterly decline in GDP. The Japanese economy contracted 0.6 percent in the October-December quarter from the preceding quarter, or at an annualized pace of 2.5 percent, and 0.9 percent in the January-March quarter from the preceding quarter, or at an annualized pace of 3.6 percent.

The Cabinet Office blamed the decline primarily on slumping exports in the wake of the devastating earthquake and tsunami that hit the northeastern part of the country March 11.

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  The March 11 twin natural disasters directly affected many auto, electronics and other parts makers’ plants, causing disruptions to supply chains. They also triggered the nuclear crisis at the Fukushima No.1 plant and resulted in the shutdown of many other nuclear power plants across the country. As a result, many factories in a wide range of industries have been forced to stop or curtail operations due to parts and electricity shortages.

According to the Cabinet Office’s preliminary report, consumer spending, which accounts for nearly 60 percent of Japan’s GDP, fell 0.1 percent in the April-June quarter on a quarter-on-quarter basis, or at an annualized pace of 0.3 percent. But corporate capital investment edged up 0.2 percent on a quarter-on-quarter basis, or at an annualized rate of 0.9 percent.

In nominal terms, or before adjustment for price change, the Japanese economy shrank 1.4 percent in the April-June period on a quarter-on-quarter basis, or at an annualized pace of 5.7 percent.

Many analysts now expect GDP growth to return to the positive territory in the July-September quarter as industrial production is recovering more rapidly than earlier projections had forecast.

Economic and Fiscal Policy Minister Kaoru Yosano also told reporters he expects “relatively high” GDP growth later this year thanks to demand related to reconstruction from the March 11 twin natural disasters.

However, Yosano expressed concerns about growing uncertainty over the world economy and a sharp rise in the value of the yen, which affects Japanese exports as it makes Japanese products more expensive in overseas markets.

Contact Hisane Masaki at yiu45535@nifty.com.