News » Money
Sep 8, 5:19 AM EDT

Japan says economy contracted 7.1 percent in April-June on bigger drop in business investment

AP Photo
AP Photo/Shuji Kajiyama
World Video

Archery on horseback still draws crowd
Ainu Rebels reclaim cultural pride
Japanese defend whaling tradition
Japan deals with 'Minimata Disease'
Latest News
Living to 100 _ and beyond _ becoming more common in Japan and globally

Japan's prime minister turns up the pressure on North Korea over abduction issue

IMF chief Lagarde says empowerment of women vital for global recovery

Japanese nuclear plant passes new safety standards, paving way for first restart

Many words, but little new, in 12,000-page official history of wartime emperor Hirohito

Buy AP Photo Reprints
A district summary of the Beige Book
Measuring economic stress by county nationwide
Mall malaise: shoppers browse, but don't buy
Unemployment by the numbers
Family struggles with father's unemployment
Saying an affordable goodbye
Hard times hit small car dealer
Latest Economic News
Inflation drops in UK, making interest rate rise this year increasingly unlikely

Russia's ruble drops to all-time low amid fears over fallout from economic sanctions

World Bank: Palestinian economy to shrink 4 percent in 2014, after several years of growth

Confidence vote in French parliament hinges on stagnant economy, split within Socialists

OECD think tank cuts growth forecast for several developed countries, singles out eurozone

Chinese industrial production slows to 6.9 percent growth in August amid weaker export demand

US retail sales increase 0.6 percent in August, led by spending on autos and restaurants

Royal Bank of Scotland warns it's ready to move HQ to England in case of Scottish independence

Global gloom: Pew survey finds widespread dissatisfaction with economic performance

Some industries experience pay gains even as overall US wages lag, at a glance

Greece's Debt Threatens to Spread
State budget
gaps map
Auto industry problems trickle down, punish Tennessee county
Women give old Derby hats a makeover in tough economy
S.C. town deals with highest unemployment in South
How mortgages were bundled and sold as securities
Tracking the $700 billion financial bailout
Tracking the year's job losses
State-by-state foreclosures since 2007
Credit crisis explained
Presidents and their economic legacies
Lexicon of the financial crisis
Americans' addiction to debt
Related Stories
Video of Illinois lawmaker's tirade resurfaces in one of nation's most competitive House races

Seattle evangelical megachurch shutting down branches, cutting jobs

TOKYO (AP) -- Japan's economy shrank more sharply in the second quarter than first estimated and the latest indicators suggest only a modest bounce back since then.

The world's third-largest economy contracted at an annualized rate of 7.1 percent in the April-June quarter, according to updated government figures Monday. The initial estimate released earlier this month said the economy contracted 6.8 percent. Business investment fell more than twice as much as first estimated.

The economy's contraction was expected after Japan increased its sales tax from 5 percent to 8 percent on April 1.

So far, data for the current July-September quarter suggest any rebound in growth is likely to be modest and slow in materializing.

A government survey of "economy watchers" released Monday showed confidence in the economy's prospects deteriorated in August.

Business activity surged early in the year, with the economy growing 6 percent in January-March, as consumers and businesses stepped up purchases to avoid paying more tax.

Prime Minister Shinzo Abe has championed an aggressive stimulus program aimed at ending chronic deflation that has discouraged corporate investment and dragged on growth. A sustainable recovery will require strong corporate and private spending, since exports and public spending have so far done little to lift growth.

Abe will be watching data from the current quarter as he decides later in the year whether to go ahead with a further 2 point increase in the sales tax to 10 percent in 2015.

Surveys show the public opposes a further tax increase, though increases are needed to counter ballooning public debt, which now is more than twice the size of the economy.

The revised data Monday show business investment fell more than twice as much as estimated before, or 5.1 percent, while private residential spending sank 10.4 percent in annual terms.

"Theoretically, there should be no impact from the consumption tax increase on corporate spending or long-term corporate planning, but a large number of Japanese corporations seemed to see a large impact from the hike on final demand," said Junko Nishioka, an economist at RBS Japan Securities in Tokyo.

"We are not that pessimistic for the future picture of the Japanese economy," Nishioka said, forecasting a "V-shaped recovery," supported by stronger wage growth.

Conditions remained weak in July. Real incomes fell 6.2 percent from a year earlier and household spending dropped.

The survey of economy watches, a grassroots assortment of service industry workers and others thought to have a good real-time sense of business activity, was at 47.4 in August, down from 51.3 in July and the first drop in five months.

"Industrial production was still 2 percent below the second quarter average in July, and we have yet to see a turnaround in capital spending," Marcel Thieliant of Capital Economics said in a commentary.


You can follow Elaine Kurtenbach on Twitter:

© 2014 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy and Terms of Use.