Japan confirms deeper GDP decline, backing stimulus package

[TOKYO] Japan’s economy shrank in the three months to September, the government confirmed in a revised report, giving further justification for Prime Minister Sanae Takaichi’s stimulus package announced last month.

Gross domestic product fell at an annualised pace of 2.3 per cent in the third quarter led by worse than expected business spending, marking the first decline in six quarters. The contraction was deeper than the preliminary reading of a 1.8 per cent fall and the median forecast of a 2 per cent decline.

The lacklustre results back up Takaichi’s stimulus package, which featured the largest fresh spending since the pandemic. It adds an element of complexity to the Bank of Japan’s (BOJ) upcoming policy decision, but likely won’t derail it from its gradual hiking path.

To ease the burden of inflation on households, Takaichi unveiled a stimulus package featuring 17.7 trillion yen (S$148 billion) in planned fresh spending. Outlays from the package include price-relief steps such as utility subsidies and tax cuts, as well as wage-support measures aimed largely at helping smaller firms. Labour unions in the country are pushing for continued growth in pay negotiations after the strong pay hikes of recent years.

The government estimates that the package will lift the nation’s GDP by an average of about 1.4 percentage points per year on an annualised basis for three years, assuming the measures take effect during that span. Making sure that voters feel the hit from inflation is easing is key for Takaichi, whose predecessors have been ousted from office partly due to simmering discontent over the cost of living.

Separate labour ministry data on Monday showed real wages fell 0.7 per cent from the previous year in October, the 10th straight month of decline. While nominal wages rose 2.6 per cent and base salaries climbed at the same pace in a sign of sustained pay momentum, the pace is still slower than inflation.

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Japan’s main price gauge has remained at or above the BOJ’s 2 per cent target for more than three and a half years, marking the longest streak since the early 1990s. BLOOMBERG