The reduction in consumer spending and drop in exports are squeezing the world's third largest economy. During April-June quarter, exports from Japan eased putting further pressure on the Japanese economy, which slowed down at 1.6 percent annual growth rate as against the forecast of 1.9 percent.
Japan Prime Minister Shinzo Abe is under severe pressure in charting out strategies to speed up the economy, which has been reeling under deflation for decades. Economists forecast a moderate growth in the third quarter of this July-September.
The latest data reveals the sluggishness in the economy and the standstill in growth rate may also force law makers to formulate policy to provide additional monetary benefits to give a boost to the economy.
The Japanese economy suffered it first retraction since July- September quarter in 2014 year. Mainly the ongoing slowdown in the Chinese economy followed by its impact on other emerging markets has taken a toll on the Japanese economy.
Considering the ongoing conditions in the economy and world markets, economists predict that the growth rate for the current third quarter (July-September) is likely to be modest.
The slowdown in Japan's economy and exports is likely to put pressure on Bank of Japan (BoJ) to go for the monetary aid package. Beating forecasts by over 100 percent, the private consumption fell 0.8 percent during the second quarter from the previous quarter.
The private consumption accounts for about 60 percent of economy output. The hike in sales tax also affected the consumption. The consumer spending on clothes, personal computers, air conditioners eased significantly.
Japan Economics Minister Akira Amari stated that the consumption may have been hit by rising food prices. The Japan currency Yen is also weakened and this has further pushed up import costs for the country. The sluggishness in the US and other Asian markets resulted in drop in exports from Japan.
The inventories are piling up as drop in private consumption and exports. Analysts observe that the economic situation is far worse than what the latest GDP numbers reveal. Once the private consumption recovers then income levels would also be improved. According economists, the private consumption is expected to pick up in the days to come.
If the adverse conditions are continued in the July-September quarter also, then it will force Bank of Japan to announce some stimuli to give a boost to the economy. Japanese economy already registered a moderate recession in 2014 following the negative impact from an increase in sales tax in April last year.
Japan started recovering from this year beginning and at a time when everything looks well, again slowed down owing to Chinese factor.
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