We can also see that this was the lowest reading since Q2 2005, and gives us some indication of one of the factors responsible for slow Q2 GDP growth, although it does seem that there is some possibility that the Q2 data may now need to be revised downwards. The big question, of course, is what is happening during Q3. But do note this quote in Bloomberg from Hiroaki Muto - senior economist at Sumitomo Mitsui Asset Management in Tokyo - ``We can't rule out the possibility that the economy shrank last quarter, though such a dip would be temporary. "
So in fact, the longest Japanese expansion in recent history may have already ended.
The report may hinder the Bank of Japan's case that the economy is strong enough for it to raise the key overnight call rate in two weeks. Companies may pare investment even more in the coming months if the U.S. housing crisis curbs demand in Japan's largest export market.
``The U.S. housing recession is a risk factor and may slow foreign demand,'' said Naoki Iizuka, senior economist at Mizuho Securities Co. in Tokyo. ``It is too early to conclude that capital spending will be a problem for the Japanese economy,'' he said, adding that a change to the sample used by the finance ministry may have distorted the reading.