Check out what's bugging Japan's economy

Worries of government's shortage in subisidizing buyers of energy efficient cars have been rising.

According to DBS, market concerns about a sharper economic slowdown in 2H12 are growing. One worry is that the government budget subsidizing buyers of energy efficient cars will run out this month, which will lead to a contraction in automobile sales and production. Still, the adverse impact on GDP growth shouldn't be exaggerated.

Here's more from DBS:

In 2010 when a similar stimulus program expired, production of transport equipments fell 4-5% QoQ sa for two consecutive quarters. Given that transport equipments account for 12% of manufacturing production and manufacturing accounts for 20% of GDP, the negative impact on GDP growth was limited to 0.1% QoQ sa per quarter.

Another concern about growth slowdown is that the opposition parties currently block the passage of a bill to finance part of the FY2012 budget, in order to force the prime minister to dissolve the lower house of the parliament and hold an early election.

Without a timely solution to the problem of budget financing, there will be risks for the central government to cut spending on social welfare and grants to local governments later this year. That said, public spending on reconstruction, which has been covered by the supplementary budgets of FY2011, shouldn't be affected. Growth in public construction works has remained strong as of August (21.6% YoY).

The biggest uncertainty is the export outlook, in our view. July's industrial production (-1.2% MoM sa) and August PMI (47.7) were weaker than expected. The global economic environment remains fragile, due to the lingering risks of a contagion of European debt crisis, hard landing in China and a so-called fiscal cliff in the US. Prolonged weakness in exports will be the main downside risk to our GDP forecasts of 2.7% in 2012 (1% on average in 3Q-4Q) and 1.5% in 2013.