Tokyo, September 8

Disappointing growth figures released in Japan today rekindled speculation that the central bank might have to unleash yet more stimulus to prop up a faltering recovery that is refusing to take root.

The numbers came as data from China showed its international trade was slowing, underlining the difficulties the world is facing as Beijing re-orientates its export-driven economy.

Tokyo’s revised GDP figures today showed the world’s number three economy shrank a little less than previously thought — 0.3 per cent, against an earlier estimate of 0.4 per cent.

But analysts said the slightly-better-than-expected headline concealed worrying details that showed domestic demand was not in great shape.

Marcel Thieliant of Capital Economics said manufacturers were running up inventory — indicating they were not selling their products — and were investing less in new machinery and plants.

“The details were hardly reassuring,” he wrote in a commentary.

“The upward revision was mostly due to a larger contribution from stock building,” he added.

The latest numbers present another challenge to Prime Minister Shinzo Abe, whose bid to kickstart Japan’s long-laggard economy has stumbled.

However, Abe — who swept to power in late 2012 — was today re-elected unopposed as head of his ruling Liberal Democratic Party in a rubber stamp poll that could give him three more years at the helm.

He sought to put a positive gloss on the state of the economy, which he has vowed will return to growth and banish the years of deflation.

“Employment and incomes are both getting stronger. The remaining (task) is to keep this virtuous economic cycle going so people feel that a recovery in under way and that the exit from deflation will drive future economic growth,” he said.

The slowdown comes more than two years after Abe launched his policy blitz, dubbed ‘Abenomics’, aimed at breathing life into the economy.

The programme called for big government spending, massive Bank of Japan (BoJ) monetary easing and reforms to cut red tape in Japan’s highly regulated economy.

But reforms, including shaking up a protected agricultural sector and drawing more women into the workforce, have not moved as fast as initially expected.

Household spending has also been unsteady following a sales tax rise last year, brought in to pay down a massive national debt, which saw consumers rush to stores before prices rose.