TOKYO (Reuters) - Japan’s economy slid back into recession in July-September as uncertainty over the overseas outlook hurt business investment, putting policymakers under growing pressure to deploy new stimulus measures to support a fragile recovery.
“Private consumption and exports rebounded, while housing investment marked the third straight quarter of increase ... While GDP marked the second straight quarter of contraction, it was mainly due to declines in inventory and increases in imports driven by growing final demand. As such, we don’t need to be too pessimistic.
“Japan’s economy will gradually pick up as private consumption and exports continue to improve moderately. Capital expenditure will also turn up.”
“While there are some weaknesses, Japan’s economy continues to recover moderately as a trend with corporate revenues at record high levels, and job and income conditions improving.
“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of various (stimulus) steps taken so far ...
“The government will continue to watch economic developments carefully and guide economic and fiscal policy flexibly.”
“The second straight fall in GDP underlines the downside risks to the Bank of Japan’s growth forecasts. With rising slack dampening price pressures, we remain convinced that more monetary stimulus will eventually be needed.
“Admittedly, policymakers have shown considerable reluctance to respond to weaker growth with additional stimulus as underlying inflation has accelerated. Indeed, we see little chances that the Bank will respond to today’s data by stepping up the pace of easing at its meeting later this week.
“But the key point is that the output gap widened again last quarter. The upshot is that the (BOJ’s) preferred inflation measure, which excludes prices of fresh food and energy, should start to moderate soon.
“We therefore remain convinced that more stimulus will eventually be needed, and now believe that the January meeting is the most likely venue for its announcement.”
SHUJI TONOUCHI, SENIOR FIXED INCOME STRATEGIST, MITSUBISHI UFJ MORGAN STANLEY SECURITIES
“The biggest drag on the economy was the decline in inventories, which implies that industrial output could pick up in the second half of the fiscal year. However, I am not optimistic because domestic demand is not that strong.
“China’s economic slowdown did not have a big impact on Japan’s Q3 GDP, but we could see a negative impact in the following quarters. The government does not have to respond right away, but economic stimulus could become more likely if things do not get better.”
TAKESHI MINAMI, CHIEF ECONOMIST, NORINCHUKIN RESEARCH INSTITUTE
“A big drop in inventories was the biggest factor behind the third-quarter contraction. Weak capital spending was a concern, but excluding these factors, the GDP figures were not so bad.
“Private demand is firm on the whole, therefore it may be misleading to describe the economy being in a recession. While inventory adjustment is making progress, final demand is picking up so the economy is looking up, albeit slowly.
“Given the economy is not in such bad shape as the headline GDP number showed, authorities may not consider large-scale stimulus for now. The BOJ is likely to stand pat for the time being, and the government will likely limit fiscal spending to the minimum necessary to respond to supply-side reform in the long run rather than near-term steps to stimulate demand.”
Reporting by Leika Kihara, Tetsushi Kajimoto, Stanley White; Editing by Chang-Ran Kim