Japan’s economy declines in the 2nd quarter

Prime Minister Shinzo Abe and Bank of Japan (BoJ) Governor Haruhiko Kuroda are probably quite concerned about the success of Abenomics. Japanese growth is not picking up, in the second quarter, GDP contracted by 1.6% (annualised) versus the preceding quarter, mainly due to weak private consumption and moderate export growth. 

This is another piece of negative news for the BoJ. At which point will the central bank need to seriously consider further monetary expansion? The low oil prices and the risk that the depreciation of the currencies of important trading partners in Asia (in particular China) will lead to lower import prices are pushing down inflation. 

And with domestic demand lagging, the Abenomics concept as a whole is being undermined, as it relies completely on consumption pushing up prices and wages in order to get government debt under control in the medium term. 

"We are starting to wonder just how many setbacks the BoJ can accept. It seems that it will increasingly welcome a weaker yen. The "Kuroda" line for USD-JPY (125.00) is no longer set in stone", says Commerzbank.