Japanese economy grinds to a halt in second quarter with zero growth

Jake Cordell
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Shinzo Abe was elected on a promise to restore growth to the Japanese economy
Shinzo Abe was elected on a promise to restore growth to the Japanese economy (Source: Getty)

Japan has been confronted with a familiar foe this morning, as its economy recorded zero growth in the second quarter of the year.

Despite intervention from government and a looser monetary policy, Prime Minister Shinzo Abe was unable to heave the world's third largest economy into action, with GDP growth coming it at zero per cent on a quarterly basis.

The sluggish expansion surprised economists and analysts who had been expecting growth of at least 0.2 per cent after the impressive 0.5 per cent recorded in the first three months of the year. It will heap pressure on both the Bank of Japan and the government to deliver a more hard-hitting stimulus after routinely disappointing markets with the most recent plans.

Ana Thaker, an economist at Phillip Capital said: "It appears that the initial boost from the huge stimulus programme has done nothing to deliver long term growth, as promised. Markets will now seriously call into question what the world’s third largest economy can do to stimulate sustainable growth."

The Nikkei 225 eased back by around 0.3 per cent on the news and the yen continued to strengthen, climbing to ¥101 against the dollar.

Japan's economy minister Nobuteru Ishihara also issued a warning about the potential impact the UK's vote to leave the EU could have on its economy, although he was relatively optimistic about Japan's prospects despite the second quarter slowdown.

The stagnation was driven by weakness in exports, according to Emily Nicol at Daiwa Capital Markets. However, she pointed out that taken with the bumper first quarter, Japan's economy still grew by a decent 0.6 per cent in the first half of the year.