Is Abenomics Slipping? Stocks In Focus

Japanese Prime Minister Shinzo Abe’s much vaunted program to boost the country’s economy seems to be treading troubled waters. The country’s latest GDP figures reveal that the world’s third largest economy contracted during the last quarter of 2015, a development which threatens to derail Abe’s program of economic stimulus. A soaring yuan and the impact of recent monetary stimulus measures, namely negative interest rates, on the economy are other factors which have investors worried.

Q4 GDP Contracts

The last three months of 2015 were not particularly encouraging for Japan. Latest figures show that GDP contracted by 1.4% during the fourth quarter of last year on an annualized basis. This decline is far worse than all forecasts for the metric. It also comes immediately after a 1.3% increase in the third quarter of last year.

A fall in private consumption was the major reason for the contraction. Private consumption declined 0.8% during the quarter. However, a section of economists attributed the weakness in household consumption to the reluctance of consumers to purchase winter related products due to unexpectedly warm weather.

Soaring Yuan to Hurt Automakers

But there were other worrying details in the report. Exports declined by 0.9% during the fourth quarter. However, demand from abroad continues to make up nearly 0.1% of total GDP. This figure is arrived at if one takes into account the trade balance. Imports declined by 1.4% over the quarter.

Following the release of GDP data, the yen declined. However, Japan’s currency has moved upward recently and is expected to hurt the profits of exporters as a whole and automakers in particular. Last week, the yen surged to the highest level experienced since October 2014. This prompted analysts at Mitsubishi UFJ Morgan Stanley Securities Co. and TIW Inc. to forecast a decline in earnings for Japan’s automakers over the next fiscal year.

According to estimates compiled by Bloomberg, Toyota Motor Corporation (TM – Analyst Report) and six other automobile companies from Japan are expected to garner combined earnings of 4.55 trillion yen or $40 billion during the fiscal year which ends in March 2017. This would be the most dismal rate of growth experienced by the industry over five years.