Bad day beckons for markets: Tokyo shares lose 2.6% as Japan enters recession

The world's number three economy shrank 0.4 percent in the September quarter, annualised 1.6 percent, marking the second straight quarter of contraction.

Published on:

17 Nov 2014, 4:05 am

From Agence France Presse

Tokyo stocks tumbled 2.59 percent Monday morning after official data showed Japan's economy surprisingly slumped into a recession and fanning speculation that Prime Minister Shinzo Abe will put off a planned sales tax hike.

The Nikkei 225 index at the Tokyo Stock Exchange, which closed at its highest level in more than seven years on Friday, fell 453.18 points to 17,037.65, while the Topix index of all first-section shares shed 2.09 percent, or 29.22 points, to 1,371.19.

"The numbers really disappointed," said Investrust chief executive Hiroyuki Fukunaga.

"The selling appears to be a mix of utter frustration at the government's handling of the economy and moves by hedge funds employing a 'sell-on-the-news' strategy that may have been in place regardless of the GDP data."

The world's number three economy shrank 0.4 percent in the July-September quarter, or an annualised rate of 1.6 percent, marking the second straight quarter of contraction, as a sales tax rise earlier this year hammered consumer spending.

Monday's news briefly sent the dollar above 117 yen before it eased to 115.69 yen, well below 116.26 yen in New York Friday afternoon.

"The headline figure was just shockingly bad for the markets," Takashi Hiratsuka, a trading group leader at the asset management division of Resona Bank, told Dow Jones Newswires.

The figures comes as speculation swirls that Abe — who faces a leadership election next year — will delay another sales tax hike next year and call a general election for next month.

In share trading, Toyota dropped 1.86 percent to 6,839.0 yen, Sony tumbled 2.43 percent to 2,343.0 yen and while market heavyweight Fast Retailing, operator of the Uniqlo clothing chain, tumbled 3.11 percent to 42,830.0 yen.

US stocks were little-changed Friday but the S&P 500 picked up enough for a new record as a possible Halliburton-Baker Hughes merger sparked buying in the oil services sector.

The Dow finished down 0.10 percent while the S&P 500 added 0.02 percent.

From Bloomberg:

Nov. 17 (Bloomberg) — Japan's economy fell into recession last quarter. Following are the key takeaways from the news.

* The unexpected contraction increases the odds Prime Minister Shinzo Abe will postpone another bump in the sales tax that's slated for next October. Economy Minister Akira Amari said decisions on the levy, whether to compile stimulus or call a snap election, were all up to the prime minister. He expects Abe to make "some kind of decision" tomorrow or later.

* News of the recession makes it harder for the Bank of Japan to end the country's "deflationary mindset." The central bank's decision to boost already-record stimulus last month was aimed at pre-empting a risk of a delay in shaking off that mood. Watch for Governor Haruhiko Kuroda's comments on Nov. 19, when the BOJ's two-day meeting ends.

* Consumption, which accounts for about 60 percent of the economy, remains weak. While household assets rose to a record at the end of June, April's 3 percentage point increase in the sales tax and the BOJ's unprecedented easing have boosted the cost of living faster than incomes have climbed, squeezing budgets.

* Companies aren't stepping up to the plate. Private investment fell for a second straight quarter, even as Japan's biggest companies were headed for record profits, and cash holdings in the second quarter were the second highest on record. Corporate Japan may also think twice about committing to more wage increases.

* Exports still aren't driving the economy, despite the yen's 13 percent slide against the dollar over the past year. The onus to support the economy may remain with the government while business investment and consumer spending fail to gain strength.

From Reuters:

TOKYO, Nov 17 (Reuters) – Japan's economy unexpectedly shrank an annualised 1.6 percent in July-September after a severe contraction in the previous quarter, likely solidifying the view that premier Shinzo Abe will delay a second sales tax hike next year.

The preliminary figure for gross domestic product (GDP) compared with a 2.1 percent increase forecast by economists in a Reuters poll. It followed a revised 7.3 percent contraction in the second quarter, which was the biggest slump since the March 2011 earthquake and tsunami, Cabinet Office data showed on Monday.

On a quarter-on-quarter basis, the economy shrank 0.4 percent in the third quarter.

Private consumption, which accounts for about 60 percent of the economy, rose 0.4 percent from the previous quarter, a sign that an increase in Japan's sales tax to 8 percent from 5 percent in April continued to take a toll. That compared with a median market forecast for a 0.8 percent increase.

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