Japan economy shrinks in Q3 as natural disasters hit

A string of natural disasters led Japanese consumers to stay away and halted factory operations

Japan's economy shrank in the three months to September, official data showed Wednesday, after a string of natural disasters hit consumer spending and exports, and China's slowing economy cast a shadow.

Gross domestic product for the July-September period contracted 0.3 percent from the previous quarter, reversing growth of 0.8 percent in the April-June period, according to the government's Cabinet Office.

A number of natural disasters dampened personal consumption, company investment and exports, said Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust Asset Management.

"Natural disasters forced consumers to stay indoors and halted factory operations, which led to a slowdown in production and investment activities," he said in a commentary ahead of the data release.

Japan was hit by several natural disasters this summer, including massive flooding in western regions due to torrential rains, a typhoon that inundated a major international airport, and an earthquake in the north that disrupted supply lines.

The temporary closure of the Kansai International Airport led to a fall in tourism and overseas shipments, Kitakura said.

Exports of goods and services were down 1.8 percent from the April-June quarter, with private consumption slumping 0.1 percent and corporate investment in plants and equipment off 0.2 percent.

But Kitakura anticipated a rebound in the last quarter of the year thanks to a broadly solid global economy.

"Going forward, we remain optimistic that the economy will improve. While we remain cautious on China-US trade, the global economy continues to show solid growth and exports should continue to rise," he said.

Kohei Iwahara, economist at Natixis Japan Securities, noted that one of the major drivers for the Japanese economy has been external factors like exports.

"But the trade war uncertainties have begun to increase, we see some slowdown in Asia and that is gradually hitting Japan," he told AFP.

For the rest of the year, Iwahara said he was "cautiously optimistic" as the effects of the natural disasters will fade in the final quarter.

Additionally, "the government could introduce a new fiscal stimulus package so that the economy will not fall apart and... they can hike the consumption tax next year," he said.

Japan has announced a long-delayed sales tax hike will go into effect in October 2019 to address the nation's huge public debt, despite warnings it could hobble growth by dampening already lacklustre consumer spending.

The point-of-sale tax will rise from eight percent to 10 percent as the ageing and heavily indebted country battles to finance snowballing social security bills -- especially medical fees.

The last such move -- in April 2014 -- was blamed for tipping Japan into a brief recession.

This time, Prime Minister Shinzo Abe believes he can avoid a sharp decline in consumer spending by introducing measures to cushion the blow, including plans to leave the sales tax on food unchanged.