ECONOMY PLUMMETS:
2d Quarter GDP Takes Biggest Fall in 23 Years

September 19, 1997

Japan's gross domestic product in the April-June quarter of 1997 contracted by 2.9% in real terms from the preceding quarter, or an annual rate of 11.2%, according to preliminary statistics released by the Economic Planning Agency.

It was the biggest quarterly drop since the 3.4% contraction in the January-March quarter of 1974, when the Japanese economy was reeling from the first oil crisis.

The tumble is attributable to a hike in the consumption tax in April, which encouraged last-minute buying in March, and the discontinuation of a special tax break; the bigger tax burden dampened personal consumption and housing starts.

Consumption, down by 5.7% from the quarter before, was also affected by inclement weather, including a number of typhoons in June, which limited sales of automobiles, air conditioners, and other consumer durables.

Private housing investment plummeted by 11.5% from the previous quarter, moreover, to register its second straight quarterly decline.

Private plant and equipment investment, which had been the driving force behind the recovery, receded 1.5% from the previous three months--the first quarterly decline since the October-December quarter of 1994.

"A lot of companies adopted a wait-and-see attitude at the beginning of the fiscal year in April," an EPA spokesperson explained. "And the consumption tax hike made many corporations cautious about investing in new projects."

The EPA contends that because profit levels are still quite high, there will be a return to growth in the July-September quarter.

The domestic demand component of second-quarter GDP was minus 4.0 points, a big drop from plus 1.4 points of the preceding quarter. The external demand component, on the other hand, rose from 0.0 points to plus 1.0 points.

	1996				1997
	I	II	III	IV	I	II
Real GDP	2.0	-0.3	0.3	0.9	1.4	-2.9
Personal consumption	2.0	-1.0	-0.2	1.2	4.4	-5.7
Private housing investment	6.0	5.9	-0.5	4.0	-3.9	-11.5
Private plant and equipment investment	0.8	1.4	2.0	2.2	0.8	-1.5
Increase in private inventories	1.9	-48.1	-8.5	-51.6	-90.8	2776.0
Government consumption	0.8	0.1	1.3	0.6	0.0	-1.3
Government investment	6.5	2.1	-2.0	-7.4	-12.4	4.1
Increase in public inventories	243.9	-58.3	-68.2	-42.3	619.7	-60.4
Net exports of goods and services	-55.7	-82.0	507.8	146.5	5.6	151.7
Exports of goods and services	-0.7	0.1	1.6	5.0	0.7	6.4
Imports of goods and services	2.0	1.8	-0.3	1.8	0.4	-2.0

Ministry of Foreign Affairs

Japan Information Network