Japan’s Massive Stimulus Isn’t Working: Q2 GDP Rises Only 0.2% Annualized

sunset-at-miyajima-1234881-640x480From Tyler Durden: Japan’s second quarter gross domestic product numbers badly missed estimates today, as the Bank of Japan’s continued stimulus seemed to do little to spur meaningful economic growth.

After a flurry of disappointing GDP reports from the US and Europe, not to mention last week’s uniformly poor Chinese economic data, Japan was the latest country to report that nominal economic growth in the second quarter rose a disappointing 0.2% annualized, missing expectations of a 0.7% increase, and down from the revised 2.0%  GDP growth in Q1, while on a sequential basis GDP was flat with the first quarter.

While private consumption rose 0.2% q/q; in line with estimate, there was pronounced weakness in business spending which fell 0.4% q/q; well below the consensus estimate of +0.2%, while net exports dipped -0.3% from last month’s 0.1%, confirming yet again the global economic growth remains in the doldrums, and that the BOJ is in desperate need of putting more pressure on the Japanese Yen, something it has failed to do so far this year despite unleashing NIRP and doubling the pace of its ETF purchases.

Annualized GDP barely grew, rising just 0.2%, and missed expectations.

On a sequential basis, GDP was unchanged, after fluctuating between contraction and growth for 4 consecutive quarters.

“Big Downside Risk”

As Betty Rui Wang, an economist at Standard Chartered Bank in Hong Kong observes, corporate investment has declined for two consecutive quarters, the first time since the sales-tax hike in 2014, said “GDP signals, especially for the business sector, that there is big downside risk” She also noted that the report doesn’t fully reflect the U.K.’s June 23 Brexit vote.

“The strong yen’s continued since the beginning of the year and I think a wait-and-see posture may have spread when it comes to business investment,” said Masaki Kuwahara, an economist at Nomura Securities in Tokyo.

“The number confirmed that there are still risks in the global economy,” said Kuwahara. “China’s economy is a major risk for Japan.”

It was unclear if, like China, Japan would also blame the weather for the sudden economic weakness.

More troubling is that despite the surge in the BOJ’s balance sheet to unprecedented levels, Japan’s business investment has been basically unchanged for the past three years.

Perhaps the reason for the miss is that the BOJ simply did not buy more ETFs, although it remains unclear just how the central bank becoming a top shareholder in some 55 names over the next year, among which a video game maker, a clothing retailer, and a chemical company will either push inflation to 2% or somehow force the moribund Japanese economy to rebound.

Markets Shrugged

The market’s reaction has so far been negligible, with the Yen mostly unchanged, while the Nikkei was fractionally higher on a number that in the past would have ignited a dramatic surge in stocks on hopes of more stimulus.

The iShares MSCI Japan ETF (NYSE:EWJ) was unchanged in premarket trading Monday at $12.33 per share. The largest U.S.-listed ETF targeting Japanese equities has rise 1.73% year-to-date.

EWJ-2016-08-15

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