BNP Partners says that in the latest setback for Prime Minister, Shinzo Abe’s “Abenomics” economic reform policies, data has shown that Japan’s economy, the world’s third largest, contracted again in the final quarter of 2015.

Cabinet Office data suggested that consumer spending slumped and exports failed to gain enough momentum to compensate for weak domestic demand. The economy contracted 1.4% on an annualized basis, worse than the 1.2% economists had expected. Private consumption, which accounts for 60% of Japan’s gross domestic product, fell by 0.8% compared to median forecasts for a 0.6% decline.

The news comes as confidence in the availability of tools in the central bank’s arsenal weakens. Two weeks after introducing a negative deposit rate for the first time, the country’s currency, the yen, has reached near-2 year highs against the US dollar exacerbating the situation for exporters.

“The fact that the Bank of Japan appears to have singularly failed to hit its 2% inflation target really ought to be put to one side. We really ought to be questioning the wisdom behind hoping that higher prices will encourage consumers to spend. The question seems ridiculous but that is effectively what the central bank is trying to do,” explained Yannick Touré, BNP Partners’ chief economist.

Eyes will now turn to the central bank to see what solutions it can deploy despite a rapidly dwindling policy toolbox. Many investors believe the Bank’s Governor, Haruhiko Kuroda, will double down on its quantitative easing program, which should lift Japanese equities although its effect on consumer spending has been muted.

About BNP Partners:
At BNP Partners, they define effective wealth management as an overall strategy that seamlessly integrates their clients’ personal ROI (return-on-investment) aspirations with their investment management prowess.

Whilst today’s markets can often demonstrate the type of characteristics that have served to hamper the efforts of many traditional investment methodologies to secure the returns they once did, BNP Partners continue to secure exceptional returns for their esteemed clients utilizing a meticulously applied combination of those same traditional methods whilst diligently complementing them with new, pioneering techniques.