Tokyo (1)

Japan’s economic growth nearly fell flat in the second quarter, despite the government introducing a new spending policy.

The economy slowed to a mere 0.2% annual rate in the April-June quarter, a weaker forecast of the expected 0.7% and a vast slowdown from the 2% rate in Q1.

The figures come after Japan’s Prime Minister, Shinzo Abe, said his government will introduce a 28 trillion-yen (£200 billion) package to boost the economy.

The new stimulus package aims to strengthen child-rearing and nursing-care services as well as building infrastructure, which will ease the economy growth mid- and long-term rather than a short term boost.

Economists have also reported the decrease on spending due to the lack of significant pay increases, contributing to the drop in household spending.

Mr. Abe warned prior to the referendum vote that the UK leaving the European Union would have a negative effect on Japan’s economy.

Talking to the BBC, Marcel Thieliant, Japan economist at Capital Economics said: “The main aim of Abenomics was to turn around the economy in a fundamental sense, so basically reform the traditional blockages to growth, and on that front we’ve seen very little progress,”

“Basically the economy is riding on a wave of monetary stimulus but as soon as that wave loses momentum we will basically get back to where we were before.”

The Prime Minister pledged to improve the economy’s growth rate when he took office over three years ago. However due to the stagnant state of the economy, Mr. Abe has delayed the sales-tax increase that was scheduled for next year to be introduced in 2019.

With Japan carrying on of the world’s largest public debt, it will need to raise more money to get out of its economic slump. However, when the sales tax was last increased in 2014, people cut back on spending meaning the economy grew smaller.