Bank of Japan Halts Further Stimulus Efforts


The BOJ placed a hold on easing, hoping the economy will make a recovery. The Japanese economy contracted 1.2 percent from April to June amid such factors as China's market turbulence, falling domestic demand and lagging exports. So far, the BOJ purchased 79 percent of quota-based bonds and assets in 2015, in order to inject more cash into the economy, notes Bloomberg.

The 1.2-percent contraction was better than previous analyst forecasts, but Japan faces an uphill battle nevertheless. Prime Minister Shinzo Abe has received a fair share of criticism over his economic policy, otherwise known as "Abenomics," which has thus far failed to expand wage growth and the economy at large.

To make matters worse, corporate investment dropped 0.9 percent, and the overall weakness in the corporate sector is another reason why the Japanese economy is not progressing. Though some corporations have enjoyed expanded profits, very little of the reward has trickled down to the average worker, which does not bode well for an economy that thrives on consumption. Worker compensation fell 0.2 percent from April to June.

Consumers have less spending power due to depressed wages, and a recent consumption rate hike, a very risky move in Japanese politics, has placed an additional burden on the citizenry. Japan also contends with ballooning debt that forced the government to raise taxes, and more tax increases are on the way.

With the BOJ withholding stimulus efforts in the short-term, the extra weight is now on Abe's administration to strengthen the economy. In addition to stagnant wage growth, Japan has seen slowdowns in industrial production and auto registration, adding to the many problems Abe faces going forward. The government aims to improve the economy through inflation, but falls in exports and wages continue to hamper any progress, including lower oil prices.

On the plus side, the government's tax reform laws have allowed owners to renovate their second homes, invigorating the housing sector. Further, Japan saw increases in residential and public investment, which were two key areas that fueled growth in the previous quarter. Officials believe Japan's latest data is a mere bump in the road, but they face long-term hurdles as Chinese growth continues to stagnate.

China is a major trading partner of Japan. Japan also braces for any policy changes from the Fed, which is not only causing uncertainty in the Japanese financial world but throughout the world economy as a whole. Despite troubles in the Asian markets and international markets, JPMorgan analyst Masamichi Adachi expects better results for Japan in the later part of the year, but the Japanese have quite a bit of work ahead if there is a chance of a turnaround.