© Reuters. FILE PHOTO: Outbreak of the coronavirus disease (COVID-19) in Tokyo
By Leika Kihara and Daniel Leussink
TOKYO (Reuters) – Japan’s economy shrank more than initially estimated in the second quarter as capital expenditure took a hit from the coronavirus crisis, highlighting the challenge policymakers face in averting a deeper recession.
Other data put that challenge in perspective, with household spending and wages falling in July as the broadening impact of the COVID-19 pandemic kept consumption frail even after lock-down measures were lifted in May.
The data underscored the daunting task the new prime minister, to be elected in a ruling party leadership race on Sept. 14, faces in seeking to contain the pandemic while avoiding restrictions on business activity.
The world’s third-largest economy shrank an annualised 28.1% in April-June, more than a preliminary reading of a 27.8% contraction, revised gross domestic product (GDP) data showed on Tuesday, suffering its worst postwar contraction.
The record drop roughly matched a median market forecast of a 28.6% contraction in a Reuters poll.
The main culprit behind the revision was a 4.7% drop in capital expenditure, a much bigger fall than a preliminary 1.5% fall, a sign the COVID-19 pandemic was hitting broader sectors of the economy.
Separate data showed household spending fell 7.6% in July compared with a year earlier, more than a median market forecast for a 3.7% decline.
Real wages also fell for the fifth straight month in July, other government data showed, pointing to possible deeper strains ahead for consumer spending.
The fresh batch of data will be among key factors the Bank of Japan will scrutinise at its rate review next week, when it is widely expected to keep monetary settings unchanged.
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