Japan’s real gross domestic product fell at an annualised rate of 1.6 percent in the April-June quarter, ending two quarters of growth. This was despite massive monetary stimulus by the Bank of Japan.
The main problem with the monetary stimulus, though, is that little of it is actually reaching the real economy. From Bloomberg:
The money multiplier, a gauge of activity generated when the central bank eases, fell to 3.92 last month, the lowest in data dating back to 2003. That’s even as BOJ debt purchases of as much as 12 trillion yen ($96 billion) a month caused the monetary base to balloon about 150 percent...
“Money isn’t flowing into the real economy, it’s just moving between the BOJ and banks as Japanese government bonds are transferred to the BOJ’s excess reserves,” said Takafumi Yamawaki, the chief rates strategist in Tokyo at JPMorgan Chase & Co. “The main spill-over effect from the unprecedented easing is to lower long-bond yields and a weaker yen.”
As a result, more government spending may be needed. From another Bloomberg report:
Japan needs an economic injection of as much as 3.5 trillion yen ($28 billion) to shore up consumption and stave off a further economic contraction, said Etsuro Honda, an economic adviser to Prime Minister Shinzo Abe.
“Households feel their income has been reduced,” Honda, 60, said in an interview Tuesday at the Prime Minister’s Office in Tokyo. “The negative legacy of the previous tax hike is waning, but increases in wages are lower than expected and prices of food and daily commodities are rising.”
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