Japan's Economic Slump in Q3

By Satoshi Sugiyama

TOKYO (Reuters) – Japan's economy is expected to have slowed sharply in the third quarter, impacted by sluggish consumption and capital spending, according to a Reuters poll. This slowdown complicates the central bank's plans to hike interest rates further.

Japan's inflation-adjusted gross domestic product (GDP) is forecast to have risen an annualized 0.7% in July-September, a significant cooling from the 2.9% growth rate in the second quarter.

Private consumption, which accounts for more than half of the economic output, remained tepid, likely up just 0.2%, trailing behind the 0.9% growth in the previous quarter.

Analysts suggest that persistently high prices have offset wage increases, causing concern for policymakers as the high cost of living drags on the economy. Analysts at SMBC Nikko Securities stated, "The recovery is still halfway."

Capital expenditure is expected to have decreased 0.2%, following a 0.8% rise in the second quarter. The slowdown in global economies has particularly affected machinery investment in the manufacturing sector, according to Saisuke Sakai, a senior economist at Mizuho Research and Technologies.

Additionally, one-time factors such as a typhoon in August, which disrupted factory operations, and supply issues due to a labor shortage may have negatively impacted capital investment and goods supply.

Net external demand likely contributed 0.1 percentage point to GDP, reversing a 0.1-point negative contribution from April-June.

The Cabinet Office will release preliminary third-quarter GDP data at 8:50 a.m. on Friday, Nov. 15 (2350 GMT on Thursday, Nov. 14).

The Bank of Japan maintained ultra-low interest rates on Thursday but noted that risks surrounding the U.S. economy were somewhat subsiding, indicating conditions might be favorable for raising interest rates again.

However, prolonged subdued domestic and global demand could hinder the BOJ's plans to exit a decade of easy monetary conditions.

This risk is reflected in economists' expectations for Japanese household spending, which is forecast to have declined 2.1% in September year-on-year, following a 1.9% decline in August.

On a seasonally-adjusted month-on-month basis, household spending likely fell 0.7% in September, reversing a 2.0% jump in the previous month, as consumers continue to hesitate on spending amidst high prices.

The internal affairs ministry will publish consumer spending data at 8:30 a.m. on Friday, Nov. 8 (2330 GMT on Thursday, Nov. 7).