What is causing the summer economic slump in Japan?


As discussed previously (see post), Japan’s recent economic momentum has weakened. With the economy rebounding strongly earlier in the year, many had hoped growth will accelerate. But the industrial production pullback in June did not turn out to be simply an aberration and other reports started signaling a slowdown in economic activity. As the service PMI data shows (below), the slowdown is not dramatic but is certainly noticeable.

Japan service sector PMI (source: Markit)
There is only so much that the massive monetary stimulus was able to accomplish before sentiment turned sour again.

Reuters: – Japan’s service sector sentiment index fell to 52.3 in July, a government survey showed, down for the fourth straight month, a sign that feel-good effects on consumers from government’s reflationary policies are moderating.

The Cabinet Office survey of workerssuch as taxi drivers, hotel workersandrestaurantstaff

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