Japan’s Economy Shrinks in Final Quarter of 2015

Japan’s economy contracted in the final quarter of 2015 as the world’s third-largest economy struggles to break free of contraction and expansion cycle, after implementing Abenomics program for more than three years.

The economy shranked annualized 1.4 percent and -0.4 percent in the final quarter of 2015, said the Cabinet Office on Monday in Tokyo.

Weakness in private consumption was the single biggest contributor to the contraction and undermined Prime Minister Shinzo Abe’s policies to spur growth and meet inflation target.

So far, the yen has appreciated 6.6 percent against the dollar this month even with increased monetary stimulus and efforts by officials to subdue its volatile rise.

“There are clouds on the horizon for Japan’s economy. With the strengthening yen, companies will become more cautious on spending and exports are looking subdued, while private consumption is already struggling to pick up,” Atsushi Takeda, an economist at Itochu Corp. in Tokyo said before the report. “The BOJ may have little choice but to ease further if the yen continues to rise.”

The report underscores Japan progress as everything from household spending to manufacturing production contracted in 2015.

“There’s a high chance that the BOJ may take additional easing at the next meeting in March,” said Masamichi Adachi, an economist at JPMorgan Chase & Co. and a former central bank official. “With the yen’s gains and stocks’ declines, the downside risks to the BOJ’s outlook on growth and inflation are increasing.”