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Is Abenomics failing? Japan GDP shrinks 1.4%

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Japan’s GDP shrank at a worst-than-expected 1.4 per cent in the fourth quarter of 2015 amid falls in household consumption.

Household consumption fell by 0.9 per cent in the fourth quarter, after an increase of 0.4 per cent in the previous quarter.

However, output growth is projected to pick up from around 0.5 per cent in 2015 to 1 per cent in 2016, according to the Organisation for Economic Co-operation and Development, as rising real wages support consumer spending.

But Axa Wealth head of investing Adrian Lowcock says the GDP figure was only slightly below expectations and could easily be revised upwards.

He says: “Weak economic data will naturally lead to many voicing concerns over the success of Abenomics. However, it is likely to leave the door open for more quantitative easing, whilst a weaker yen is good news for Japanese exporters.”

Following the updated GDP figures, the Nikkei 225 closed 7.2 per cent today, compared to the sharp fall of more than 20 per cent a week ago.

Lowcock says: “The Nikkei 225 has given back all of its gains made last year in Sterling terms, and even more in yen terms. The region remains attractively valued compared to other stock markets.

“However, investors need to tread carefully as some areas look expensive, such as good quality growth companies, whilst cyclical stocks look cheaper. In addition the country is still sensitive to the global economy and especially growth in China. We remain generally positive on the region but suspect there will be more volatile days to come.”

In January, the Bank of Japan introduced negative interest rates on some of the cash held on deposit by commercial banks, in an effort to boost the economy and inflation. The benchmark rate is now at -0.1 per cent.

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