The latest revised GDP estimates from Japan for the period covering the three months to September showed that the economy contracted the most in over four years.
The declines in the gross domestic product came as capital expenditure fell sharply and raised concerns about demand, both at home and overseas. Japan's economy is heavily reliant on exports and is seen feeling the pressure of the global trade uncertainties.
Official data released on Monday showed that Japan's GDP contracted 2.5% on an annualized basis. This was steeper than the initial estimates that showed a 1.2% contraction. The data was also worse than expected. Economists forecast a 1.9% decline.
The revised GDP figures showed a 0.6% contraction in real and price-adjusted terms. This was a downward revision compared to a 0.3% decline seen in the initial estimates. The data also came out worse than the median forecasts of a 0.5% decline.
The data comes amid revisions to the second quarter data. Japan's economy expanded at a revised rate of 2.8% in the second quarter. The third quarter expansion was the sharpest since Q2 of 2014. Back then, the economy contracted due to the sales tax that came into effect.
Japan, the world's third-largest economy is however expected to post a rebound in the fourth quarter of the year. Economists attribute the slump in the third quarter due to the natural disasters which hit the supply chain and factory output.
However, in part, some of the declines in the GDP came due to the global cooling demand. This comes amid the U.S. putting pressure on China and the rising threat of protectionist policies. This has put a lid on the company profits. Japan has been so far exempted from any trade tariffs. However, concerns remain.
Capital expenditure, a component of the GDP was down 2.8% in the July through September quarter compared to the previous year. The median estimates expected to see a 1.6% decline while the preliminary reports indicated a 0.2% decline.
The fall in capital expenditure was no doubt the most significant quarterly decline in the third quarter of 2009. This raised concerns that businesses are holding back from spending and investment which has been a bright spot for the economy so far.
Capital expenditure decline underpinned corporate demand including refurbishing and boosting investment in automation and other labor-saving techniques. This is regarded as an important investment amid a shortage of skilled labors.
Private consumption, which is another essential aspect for the GDP and accounts for nearly 60% of the GDP was down 0.2% during the reported quarter, compared to the previous quarter. This was also revised down from the initial estimates of a 0.1% decline.
Domestic demand was also lower, taking off nearly 0.5 percentage points from the GDP figures which revised. Net exports data contributed another 0.1 decline to the GDP.
The GDP figures come out ahead of this week's Bank of Japan's monetary policy meeting. Investors do not expect to see any significant changes from the central bank. The BoJ has kept its monetary policy steady or the most of this year.
The BoJ is not expected to make any changes to its monetary policy at this week’s meeting. The central bank will most likely wait for the October 2019 sales tax hike to kick in. Officials expect that this would potentially put pressure on inflation.
The BoJ has been consistently missing in raising inflation to the 2.0% target rate that it has set.