August 13, 2014
The NYT ran an AP article on the contraction in Japan’s economy in the 2nd quarter of 2014. The article noted the 6.8 percent annual rate of contraction and told readers that this posed a real problem for Abenomics.
While this rate of decline is undoubtedly a cause of concern, it would have been worth mentioning that its economy grew at a 6.7 percent annual rate in the first quarter. The big factor in this seesaw was a sharp rise in the consumption tax that went into effect in April. This tax increase led many people to pull major purchases forward. As a result, they bought cars, appliances, and other expensive items in the first quarter that they would have otherwise bought in the second quarter.
The modest net contraction over the two quarters taken together should still be cause for concern, but it is a very different world than one in which an economy is sinking at close to a 7.0 percent annual rate.
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