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| Japanese recession figures prompt talk of snap election | Japanese recession figures prompt talk of snap election |
| (about 5 hours later) | |
| Japan unexpectedly sank into recession in the third quarter, raising the prospect of a snap election as the prime minister, Shinzo Abe, attempts to secure a mandate to breathe life into the world’s third biggest economy. | |
| Abe is widely expected to postpone an increase in the consumption tax from 8% to 10% next October, after GDP figures released on Monday showed that a rise in the same tax in April this year – the first for 17 years – had severely dented consumer spending. | Abe is widely expected to postpone an increase in the consumption tax from 8% to 10% next October, after GDP figures released on Monday showed that a rise in the same tax in April this year – the first for 17 years – had severely dented consumer spending. |
| Japan’s GDP shrank at an annualised rate of 1.6% from July to September, the cabinet office said. This was far worse than economists’ forecasts for growth of about 2%. | |
| A 7.3% contraction in the previous quarter was blamed on the April sales tax rise, from 5% to 8%. An economy is deemed to be in recession if it suffers two straight quarterly contractions. | A 7.3% contraction in the previous quarter was blamed on the April sales tax rise, from 5% to 8%. An economy is deemed to be in recession if it suffers two straight quarterly contractions. |
| Abe now faces a difficult decision: whether to address Japan’s huge public debt – now more than twice the size of its economy – by pushing ahead with what would be a deeply unpopular tax increase, or hold off and attempt to kickstart growth. | |
| All the indications are that Abe will opt for a delay in the tax rise and call a snap election on Tuesday. Voters will probably go to the polls in mid-December, halfway through his current term. | |
| “In light of the sharp fall in today’s preliminary estimate, it now looks likely that PM Abe will call off the hike and announce snap elections,” said Marcel Thieliant at Capital Economics. | “In light of the sharp fall in today’s preliminary estimate, it now looks likely that PM Abe will call off the hike and announce snap elections,” said Marcel Thieliant at Capital Economics. |
| Although Abe has remained tight-lipped about his intentions, analysts believe he would benefit from publicly opposing the scheduled tax increase and strengthening his mandate by winning an early election. | Although Abe has remained tight-lipped about his intentions, analysts believe he would benefit from publicly opposing the scheduled tax increase and strengthening his mandate by winning an early election. |
| With the main opposition still reeling from its defeat two years ago, Abe’s Liberal Democratic party is practically assured of victory, but could lose the two-thirds majority it commands with its junior coalition partner, Komeito. | |
| Abe’s approval ratings have fallen in recent weeks following the resignations, on the same day, of two cabinet ministers, and a run of disappointing economic news. | Abe’s approval ratings have fallen in recent weeks following the resignations, on the same day, of two cabinet ministers, and a run of disappointing economic news. |
| A poll last week by public broadcaster NHK showed voter support for him had dipped by eight percentage points to 40% from a month earlier. | A poll last week by public broadcaster NHK showed voter support for him had dipped by eight percentage points to 40% from a month earlier. |
| Abe had benefited from a fledgling recovery after Japan emerged from its last recession in late 2012, with exporters benefiting from a weaker yen. | |
| But ordinary Japanese say they have yet to feel the benefits. Instead, households and smaller firms are tightening their belts due to rising costs in sectors such as energy, while wage increases have been largely confined to major companies. | But ordinary Japanese say they have yet to feel the benefits. Instead, households and smaller firms are tightening their belts due to rising costs in sectors such as energy, while wage increases have been largely confined to major companies. |
| Abe was dealt another blow on Sunday when voters on the southern Japanese island of Okinawa elected a governor who opposes plans to relocate a US marine corps air base, setting Tokyo on a diplomatic collision course with Washington. | Abe was dealt another blow on Sunday when voters on the southern Japanese island of Okinawa elected a governor who opposes plans to relocate a US marine corps air base, setting Tokyo on a diplomatic collision course with Washington. |
| His immediate focus will be the economy, however, particularly weak consumer spending and a fall in exports. | His immediate focus will be the economy, however, particularly weak consumer spending and a fall in exports. |
| One of his economic advisers suggested that Monday’s “shocking” GDP figures meant consumers could not withstand a second sales tax rise in just under a year’s time. | One of his economic advisers suggested that Monday’s “shocking” GDP figures meant consumers could not withstand a second sales tax rise in just under a year’s time. |
| “This is absolutely not a situation in which we should be debating an increase in the consumption tax,” Etsuro Honda, a key supporter of Abe’s plans to tackle deflation, told Reuters. | “This is absolutely not a situation in which we should be debating an increase in the consumption tax,” Etsuro Honda, a key supporter of Abe’s plans to tackle deflation, told Reuters. |
| The economy minister, Akira Amari, conceded that April’s sales tax rise had derailed attempts to get consumers spending again after two decades of stagnation and falling prices. | The economy minister, Akira Amari, conceded that April’s sales tax rise had derailed attempts to get consumers spending again after two decades of stagnation and falling prices. |
| But he added: “There is a positive ongoing cycle in the economy. We can’t just sum it all up with the word ‘recession’.” | |
| Monday’s disappointing data is expected to prompt Abe to announce a new stimulus package of between 3tn and 4tn yen this week, reports said. | |
| Some analysts predicted the world’s third-largest economy would rebound, but not immediately. “The data show that the economy is in a recession,” Koichi Fujishiro, an economist at Dai-ichi Life Research Institute, told Agence France-Presse. | |
| “Household consumption is still weak as real disposable income declined ... we’ll have to wait until December or January to see a rebound in the economy.” | “Household consumption is still weak as real disposable income declined ... we’ll have to wait until December or January to see a rebound in the economy.” |
| Concern over the spectre of deflation prompted the Bank of Japan to expand its already aggressive monetary easing programme at the end of last month. Monday’s data have prompted speculation that the central bank will again come to Abe’s aid with a fresh stimulus package. | Concern over the spectre of deflation prompted the Bank of Japan to expand its already aggressive monetary easing programme at the end of last month. Monday’s data have prompted speculation that the central bank will again come to Abe’s aid with a fresh stimulus package. |