The Japanese economy is the third largest in the world behind the USA and China and consequently, a major exporting nation. This fact has made it vulnerable to both the general slowdown in global economic growth and fallout from the aggressive trade policies currently being followed by the USA.
The Japanese economy continued to expand in Q3 2019, but the rate of expansion slowed sharply over the Q2 figure. Predictions from analysts suggested an annualised growth figure of 0.8% for Q3, but in the event, actual growth was well below expectations coming in at just 0.2%. The Q3 performance is the weakest seen for the Japanese economy since a 2% contraction in the same quarter last year. It comes on the heels of a Q2 growth figure of 1.8%, marking a significant slowing.
The lacklustre performance is likely to see strengthened calls for further fiscal and monetary stimulus measures to bolster what has become a weak recovery.
The Bank of Japan was confident that domestic demand would be sufficient to offset economic perturbations from the global slowdown, but private consumption data for the last quarter suggests that that demand has cooled. Analysts are also concerned that a long-delayed increase in sales tax which came in in October will further supress domestic demand. In Q2, private consumption came in at 0.6% but this slowed to 0.4% in the third quarter. On the plus side, capital spending picked up to 0.9% in Q3 over the Q2 level.
The October sales tax hike took the tax from 8% to 10%, completing a doubling of the tax from 5%, a process that started back in 2015. The government is confident that the effect of the final rise will be smaller than in the past because of measures that it has taken to mitigate the effect on Japanese households.