Japanese Economy Goes Bad

The second-quarter economic growth of Japan decreased unexpectedly comparing to previous rates. The question about the current strength of Japanese economics was put under discussion and made public on Monday.

Growth of the gross domestic product (GDP) slowed to an annualized, seasonally adjusted pace of 0.4% in the three months ended June, 30. And it is far below the determined 4.4% pace posted in the first quarter. Economists’ predictions were 2.3% for the latest period.

Comparatively to Japan, the US reported annualized growth of 2.4% while Germany generated a robust 9.1%, its fastest pace since reunification, on the back of surging exports amid a weaker euro.

China has overtaken Japan to become the world’s second largest economy, posting growth of 10.3% in the quarter.

The sharp slowdown of Japan’s economy was due to slowing export growth and weaker personal and residential consumption. Private inventories also complicate the situation, it means there is a possibility for companies to rebuilding stockpiles after having wound them down in the second quarter.

Economists are likely to trim Japanese GDP growth estimates for the year. The Japanese yen now is trading to close to a 15-year high against the USD as risk averse investors pile into the currency.

Monday’s GDP figures could add to pressure on policymakers to find other ways to deal with slowing growth and the impact of the stronger yen on the recovery.

Last week the central bank kept its economic assessment unchanged and did not announce any further easing measures.

On a price-adjusted basis, effective exchange rates are slightly below the average of the past 30 years, suggesting there is still room for the currency to rise further without direct government intervention.

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