reply Japan's new prime minister faces a challenge in revising down second-quarter economic growth

Japan's economy contracted 28.1% in the second quarter, revised down from 27.8% in the previous quarter. This is the biggest drop Japan has seen since 1955, mainly due to the impact of the COVID-19 epidemic and last year's consumption tax rise. The impact on capital spending was the main reason for the downward revision, the analysis said, highlighting the tough economic challenges facing the incoming prime minister.Economic growth was revised down in the second quarterJapan's real GROSS domestic product (GDP) fell 7.9 percent in the second quarter of this year, marking an annualised decline of 28.1 percent, according to revised data released by the Cabinet Office on Friday.In preliminary results released by the Cabinet Office on August 17th, real GDP fell by 7.8% in the second quarter compared with the previous month, or by 27.8% at an annualised rate, the biggest drop since comparable data began.The revised figures showed that plunging domestic demand remained the main reason for Japan's record economic decline in the second quarter. Personal consumption, which accounts for more than half of Japan's economy, was revised down from 8.2% to 7.9% month-on-month. The month-on-month decline in business equipment investment was revised to 4.7% from 1.5%; The month-on-month decline in residential investment was revised to 0.5% from 0.2%. Exports of goods and services fell 18.5% in the second quarter from a year earlier, while imports fell 0.5%, unchanged from previous figures.From the perspective of the contribution of internal and external demand to Japan's economic growth, the contribution of domestic demand to economic growth in the second quarter was revised from minus 4.8 percentage points to minus 4.9 percentage points. The contribution of net exports to economic growth remained unchanged at minus 3.0 percentage points.The analysis said the main reason for the second-quarter data downgrade was a steeper than expected decline in capital spending, indicating that the broader economy was being affected. At the same time, capital expenditure is not expected to rebound strongly as the future trend of the epidemic remains uncertain.Japan's economy is showing some signs of recovery as economic restrictions are eased, but the recovery remains fragile. Since the end of April, the government has offered cash grants of about 100,000 yen per citizen, and lifted the state of emergency in most areas from mid-to-late May. Real household consumption picked up significantly in June. However, the survey report released by the Ministry of Internal Affairs and Communications on August 8 showed that the data fell again in July, with both month-on-month and year-on-year negative growth. Average consumer spending by households with two or more people fell 6.5 per cent in July from a month earlier to Y266,897, while the year-on-year decline widened to 7.6 per cent from 1.2 per cent the previous month. Household consumption has fallen year-on-year for 10 consecutive months since October, when the government raised the consumption tax.Japan's current account surplus in July was about y1.47tn, down 27.4 per cent from a year earlier, according to data released yesterday. Trade in goods was in surplus for the first time in four months, at Y137.3bn; But the service trade deficit widened to Y349.5bn. Exports fell 19.6 per cent to Y5.23tn, mainly due to falling demand for cars in the US and auto parts in Thailand as a result of the outbreak.Financial reconstruction faces obstaclesIn late August, Japanese Prime Minister Shinzo Abe announced his resignation due to health reasons. Analysts say the latest downgrades show growing pressure on Japan's incoming prime minister to take further steps to support the economy.Japan's chief Cabinet Secretary Yoshihide Suga announced Tuesday that he will run for President of the ruling Liberal Democratic Party (LDP) in the election scheduled for Wednesday. Mr. Suga said Japan faces many challenges, including reducing the number of children and boosting the economy, and he will do his best to continue and advance the policies pursued by Mr. Abe. Mr. Suga said tourism should be restored as soon as possible to help restore economic vitality in some areas.Even before the outbreak, Japan's economy was in decline. Japan's economy officially entered recession after contracting 2.3 per cent in the first quarter. Japan's economy shrank 7 per cent in the fourth quarter of last year, driven by an increase in the consumption tax from 8 per cent to 10 per cent in October. The bank of Japan forecast in July that the economy would contract 4.7 per cent in the current fiscal year, which ends in March, and grow 3.3 per cent in the next.Japan's Yomiuri Shimbun newspaper reported that Abenomics was stalled by the COVID-19 outbreak. A stall could wipe out abenomics's accumulated wealth overnight. The record Y63tn tax forecast for 2020 has been forced to be slashed, with some economists predicting it could eventually fall to Y50tn - Y55tn, or a return to the level of six years ago. The prime minister's signature slogan, "Abenomics for job growth", has also begun to falter.The situation is also making Japan's fiscal reconstruction more difficult, the report said. The Japanese government is now preparing a third supplementary budget to save the economy from the epidemic. But after two huge supplementary budgets, total spending for the current year is likely to surge to y160.3 trillion, with Y90.2 trillion of government bonds issued. The fiscal dependence on debt also reached a record 56.3 per cent. Spending is also expected to continue in the 2021 budget, which is due to be completed by the end of the year.Supportive policies will continueThe epidemic has hit Japanese companies harder than expected, and both the Government and the Bank of Japan have rolled out a number of measures to support them. According to kyodo News agency and other media reports, Nissan Motor Co received a total of 180 billion yen (106 yen to the dollar) of loans from The Japanese Policy Investment Bank in May this year, 130 billion yen of which are government-guaranteed loans, the largest government-guaranteed loan in Japan's history. If Nissan defaulted on its payments, the government would shoulder as much as 80 percent of the guaranteed loans, or about 100 billion yen, Kyodo reported.To combat coVID-19, the Japanese government introduced policies in March to encourage financial institutions to lend to companies affected by the epidemic. By the end of July, THE Policy Investment Bank had lent about Y1, 800bn to large and medium-sized Japanese companies in response to the crisis, but Nissan was the only company to receive state-guaranteed loans.To support growth, the bank of Japan has already eased monetary policy twice this year, including by providing loans to cash-strapped small businesses. The Bank of Japan will hold an interest rate meeting soon. The bank is expected to leave its existing easy monetary policy unchanged. While Japan's economy is showing some signs of recovery, it still has a long way to go before it returns to pre-epidemic levels, so loose monetary policy is expected to continue, analysts said.