- Takeshi Minami, chief economist at Norinchukin Research Institute Co.
The Japanese Yen showed a muted reaction to the widely anticipated contraction in Japan's economy during the second quarter, holding steady against the U.S Dollar. Japan shrank an annualised 6.8% from the prior quarter, the most since 2011, when the record earthquake hit the country, as the sales tax hike in April forced households to put off big-ticket items purchases. Economists, however, had predicted a sharper contraction of 7.1%, but said that a bigger than expected decline in private consumption and a dramatic increase in inventories fuelled concerns over the resilience of the Japanese economic recovery. On a quarterly basis, Japan's GDP fell as much as 1.7%, the Office Cabinet reported. The contraction followed a jump in growth in the three months through March, when consumers and companies rushed to make purchases before the tax was lifted. The government stands ready to take flexible actions in case of necessity, Economy Minister Akira Amari said, as Shinzo Abe weighs whether Japan can weather another lift in the sales tax to 10% in October 2015. However, he also added that the data has not impacted the government's confidence that the economy continues to improve gradually. Bank of Japan Governor Haruhiko Kuroda had also sounded upbeat about the economic outlook last week after the BoJ stayed pat on its monetary policy, underscoring the central bank's conviction that no fresh near-term stimulus is needed to shake off the effects of the sales tax increase.
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