"With regard to the outlook, Japan's economy is expected to recover moderately on the back of the resilience in domestic demand and the pick-up in overseas economies"
- The Bank of Japan
Economic activity in the world's third largest economy unexpectedly shrank under Shinzo Abe's stimulus policies in June, as economy decelerated more than expected in the second quarter, a release by the Ministry of Economy, Trade and Industry showed Tuesday. The Indices of All Industry Activity, which is considered as a measure of value of goods and services purchased by domestic companies, fell 0.6% in June, against an expected gain of 0.7%, and well below the previous month's reading of 1.2%. It was the first monthly drop after fourth straight month of gains in the index, which were pointing at stable growth in businesses' mood. The decline was mostly driven by a notable 3% decrease in industrial output, and even though activity in construction sector advanced 3.4%, tertiary activity tumbled 0.3%. Moreover, government services remained flat over the same period.
The latest figures showed the Japanese economy decelerated more than it was initially expected in the second quarter, due to a drop in business investment, undermining gains in both consumer and government spending that helped to reduce deflationary pressures. Furthermore, the nation's trade deficit worsened significantly, due to a 25% drop in Yen's value. However, so far the government measures have shown early signs of success; but recent data suggests positive effects of Abenomics are coincided with certain risks, which can become a drag on future economic performance.
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