Japan’s Q2 GDP Plummets 6.8%!

Last June I wrote about the entangled state of the Japanese political economy due to the “Abenomics engineered economy.” 

It’s a wonder how the Japanese economy can function normally when the government destabilizes money and consequently the pricing system, and equally undermines the economic calculation or the business climate with massive interventions such as 60% increase in sales tax from 5-8% (yes the government plans to double this by the end of the year to 10%), and never ending fiscal stimulus which again will extrapolate to higher taxes.

The mainstream has all been desperately scrambling to look for “green shoots” via statistics. They fail to realize that by obstructing the business and household outlook via manifold and widespread price manipulations, this will only lead to not to real growth but to greater uncertainty which translates to high volatility and bigger risks for a Black Swan event.

All these multi-prong interventions appears to have caught up with the statistical economy as Japan’s GDP plummeted by 6.8% in 2Q 2014!  

From Bloomberg: (bold mine)

Japan’s economy contracted the most since the record earthquake three years ago as consumption and investment plunged after an April sales-tax increase aimed at curbing the world’s biggest debt burden.

Gross domestic product shrank an annualized 6.8 percent in the three months through June, the Cabinet Office said. That was less than the median estimate of 37 economists surveyed by Bloomberg News for a 7 percent drop. Unadjusted for price changes, GDP declined 0.4 percent…

Hopes for a Quick rebound?

While Prime Minister Shinzo Abe is counting on a quick rebound, the economy was struggling in June, with output falling the most since March 2011 as companies tried to pare elevated inventories. The government is ready to take flexible action if needed, Economy Minister Akira Amari said today, as Abe weighs whether Japan can bear another bump in the levy in 2015.

The damage has been widespread from consumption and trade which has spread to corporate profits.

Household consumption plummeted at an annualized pace of 19.2 percent from the previous quarter, while private investment sank 9.7 percent, highlighting the damage to demand by the 3 percentage point increase in the levy…

Imports tumbled an annualized 20.5 percent while exports fell 1.8 percent. That’s sapping the manufacturing sector and shows the yen’s 16 percent drop against the dollar over Abe’s term has yet to drive outbound shipments.

The windfall in corporate profits that the weaker yen delivered to many Japanese manufacturers last year also shows signs of fading.

Will PM Abe still push more tax hikes?

 

The Zero hedge has eye-catching and very telling charts on these.

History rhymes. The collapse in GDP has even more than the 1997 counterpart. 

The collapse in spending has even been greater than 1997

Then Japan’s stocks crumbled. This we have yet to see today. The Nikkei is even marginally up as of this writing.

The reason for this has been most likely “bad news is good news”. The chronically addicted stimulus crowd have been waiting for the government “to take flexible action if needed”

Stocks have been about the economy?