Japan's economy contracted in the first quarter due to weaker consumption and external demand, presenting a new challenge for policymakers as the central bank aims to lift interest rates from near-zero levels.
Preliminary gross domestic product (GDP) data released by the Cabinet Office on Thursday showed a 2.0 percent annualized decline in the economy from January to March compared to the previous quarter, exceeding the 1.5 percent drop forecasted by a Reuters poll of economists. Revised data also indicated that GDP growth was minimal in the fourth quarter.
This annualized figure corresponds to a 0.5 percent quarterly contraction, slightly more than the 0.4 percent decline anticipated by economists.
Private consumption, which makes up more than half of Japan's economy, fell by 0.7 percent, significantly more than the expected 0.2 percent drop. This marks the fourth consecutive quarter of decline, the longest streak since 2009.
"Japan's economy hit bottom in the first quarter," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. "The economy will certainly rebound this quarter due to rising wages, although uncertainty remains regarding service consumption."
Capital spending, a key component of private demand, fell by 0.8 percent in the first quarter, slightly more than the expected 0.7 percent decline, despite strong corporate earnings.
External demand, or the net exports figure (exports minus imports), reduced first-quarter GDP by 0.3 percentage points.
Policymakers are hoping that rising wages and income tax cuts starting in June will help stimulate weak consumption.
The negative impact on growth from an earthquake in the Noto area this year and the suspension of operations at Toyota's Daihatsu unit is also expected to diminish.
Nevertheless, a sharp depreciation of the yen to levels not seen since 1990 has raised concerns about increased living costs, which are straining consumption.
The Bank of Japan (BOJ) raised interest rates in March for the first time since 2007, marking a significant shift away from negative rates. However, the central bank is expected to proceed cautiously in tightening monetary policy due to the fragile state of the economy.
Paraphrasing text from "Reuters" all rights reserved by the original author.
