TOKYO (AP) — The world's third-largest economy is stuck in neutral, as wary Japanese consumers and corporations opt to hold onto their cash rather than spend it.
The latest data, released Tuesday, showed Japan's GDP contracted at a 1.1 percent annualized pace in the last quarter in further evidence the economy is failing to gain traction despite unprecedented efforts by the central bank to spur more growth.
The revised figures compared with a 1.4 percent expansion in the July-September quarter. They showed a modest improvement over the previous estimate of a 1.4 percent contraction in October-December.
A monthly consumer survey for February, meanwhile, showed families were likely to cut spending further following the recent spate of turmoil in financial markets.
But more recent data suggest Japan's growth has remained tepid in early 2016, raising the likelihood of further government moves to help boost growth. That could include further moves by the Bank of Japan to encourage lending, extra government spending and possibly a second delay in a sales tax hike scheduled for April 2017.
"Companies have not been as downbeat about production in the month ahead since the 2008 recession. What's more, consumer spending fell further in January as indicated by dips in 'core' household spending and retail sales," Marcel Thieliant of Capital Economics said in a commentary.
Prime Minister Shinzo Abe faces pressure both at home and abroad to deliver faster results three years after launching a recovery strategy, dubbed "Abenomics" that helped boost share prices and corporate profits but has not rekindled growth as quickly as hoped.
Abe will be hosting a summit of the Group of Seven industrial nations in central Japan's Mie prefecture in May. His economy minister, Nobuteru Ishihara, said Tuesday that ahead of that meeting, the government would convene several seminars with top economic experts to study the global economy and how to cope with slowing growth.
Japan's economy grew 0.5 percent in 2015 after flat-lining in 2014
In quarterly terms, the economy shrank 0.3 percent in the last quarter compared with a preliminary estimate of a 0.4 percent contraction.
Business investment climbed 1.5 percent, helping to offset a decline in spending on housing. Overall public investment dropped 3.4 percent.
Economists are divided on whether the Bank of Japan, which holds a policy meeting next week, will expand asset purchases that are pumping trillions of yen (hundreds of billions of dollars) into the economy to help combat deflation.
Last month, the central bank began charging a fee on some commercial banks' deposits, imposing a "negative interest rate" policy that has driven bond yields and interest rates on mortgages and savings deposits lower.
Stuck with diminishing returns on their savings and resistant to a newly implemented official identification system known as "My Number," many Japanese households are shifting investments overseas or just stashing cash at home: sales of safes have soared so quickly that retailers say manufacturers cannot keep up with demand.
Bank of Japan Gov. Haruhiko Kuroda defended the central bank's strategy in a speech Monday. Companies and consumers will eventually begin spending more, he said, enabling Japan to reach a 2 percent inflation target and vanquish deflation.
"Japan's economy has improved significantly from three years ago," Kuroda said, pointing to low unemployment and record-high corporate profits that mostly reflect a weakening of Japan's currency thanks to the BOJ's monetary easing.
Since banks' profit margins are being squeezed, "there is a strong concern that the introduction of a negative interest rate will make the situation even worse," Kuroda said. But he said he was confident that ending deflation would lead to higher interest rates in the long run.
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