By James Saft
(Reuters) – Abenomics has a critical weakness: Japan’s companies are not playing along and it’s hard to blame them.
Japan’s economy, struggling to end decades of deflation and recession, grew at a disappointing 2.6 percent annualized clip in the second quarter, according to figures released on Monday, a full percentage point below forecasts and a marked slowing from the first three months of the year.
While the poor showing immediately focused minds on whether the economy could withstand a planned hike in sales tax, the real puzzle lies in the story behind yet another fall in investment by companies.
So-called capital expenditure fell by 0.1 percent in the quarter, frustrating predictions of the first gain in almost two years. That’s critical because an unwillingness by Japanese companies to invest and to hire is acting as a circuit breaker on Abenomics, effectively blunting the transmission of monetary and fiscal policy to the real economy.
Abenomics, a cocktail of fiscal and economics stimulus poured over a base of reforms, is intended, among other things, to drive down the value of the yen, which in turn should allow newly competitive companies to export more, hire more workers and contribute to a virtuous cycle of investment, consumption and growth.