Asia Unhedged doesn’t want to come right out and call Abenomics a failure, but things aren’t looking good.
Japan just reported that its industrial output unexpectedly fell for the second consecutive month in August. That leaves the world’s third-largest economy teetering on the edge of its second recession since Prime Minister Shinzo Abe put his economic plan, Abenomics, into effect.
The consensus forecast expected August to see a 1.0% increase in output. Instead, after falling 0.8% in July, output of goods fell an additional 0.5% in August, according to government data released Wednesday.
“Japan’s recovery has ground to a halt,” Marcel Thieliant, economist at Capital Economics told the Wall Street Journal. The latest output data suggests “Japan’s economy shrank yet again in the quarter that ends today. Additional easing by the Bank of Japan next month looks all but inevitable.”
This forced the government to take off the rose-colored glasses. Just Tuesday, the Bank of Japan said it strongly hoped industrial output would rebound in August, reported The Wall Street Journal. Now the forecast for third-quarter output is for a 1.1% decline, after falling 1.4% in the previous quarter. Gross domestic product shrank in the second quarter at an annualized pace of 1.2%.
Economists now predict the Bank of Japan will have to stimulate the economy to kick start it back into growth.
Toshihiro Nagahama, chief economist at Dai-Ichi Life Research Institute, told WSJ that the data have effectively set in stone the formulation of an economic stimulus package by the government. Nagahama said he expects a small contraction in the third quarter, but isn’t sure whether the central bank will embark on additional monetary easing.
The BOJ meets next week and at the end of October to determine policy.