Japan’s economy shrinks in first quarter

Japan’s economy is shrinking, after eight quarters of positive growth.

Japan's economy dipped owing to sluggish consumer spending. File Photo by Keizo Mori/UPI | License Photo
Japan’s economy dipped owing to sluggish consumer spending. File Photo by Keizo Mori/UPI | License Photo

According to Tokyo’s Cabinet Office on Wednesday, Japan’s GDP shrunk by an annualized rate of 0.6 percent in the first quarter of 2018, the Yomiuri Shimbun reported.

The data fell short of expectations for an annualized contraction of 0.2 percent, according to the BBC.

Several issues contributed to negative growth, including slow consumer spending, which accounts for 60 percent of GDP.

Capital investments dropped for the first time in six quarters and housing investments fell 2.1 percent.

The numbers are not discouraging signs, according to Japanese government officials.

“Consumer spending was flat due to temporary factors and also because of a recoil reduction in spending on smartphones following the increase in the previous quarter,” said Toshimitsu Motegi in charge of economic revitalization. “As the fall occurred after eight consecutive quarters of growth, I have not changed my view that the economy has been gradually recovering.”

But Motegi also said Japan needs to pay attention of “overseas economic uncertainty and market volatility.”

Economists say Japan’s exports, including electronics, are in less demand and contributing to sluggish growth.

“Globally, IT-related items have been in an adjustment phase, which weighed down Japan’s exports and factory output,” said Yoshimasa Maruyama, analyst at SMBC Nikko Securities.

“The economy is unlikely to continue to contract further. The global economy is performing well and a yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path.”

Expectations are Japan’s economy will enter an important stage for reaching a “virtuous economic cycle” where better corporate performance will lead to a rise in wages, according to the Yomiuri.

Japanese Prime Minister Abe has spearheaded the revitalization of Japan’s economy with reflation, monetary easing, and structural reforms.

The policy has been credited for Japan’s recent recovery.

By Elizabeth Shim