TOKYO — Japan’s economy contracted in the first quarter, but at a slower pace than expected, the government said Wednesday.
The world’s third-largest economy contracted at an annual rate of 0.5%, according to Cabinet Office data. That was less than the 1.0% contraction in the preliminary estimate of Japan’s real gross domestic product, or GDP, released in May.
The annual rate shows how the economy would have grown if the quarterly rate were to hold for a year. Japan’s economy contracted 0.1% in January-March from the previous quarter, better than the 0.2% quarter-on-quarter contraction in preliminary data.
Consumer spending and other private demands have been stronger than previously thought.
The upward revision was a pleasant surprise for analysts.
“Looking forward, we expect GDP to rebound in 2Q mainly due to better private consumption, but higher commodity inflation will likely limit gains in real terms,” said Robert Carnell, regional head of Asia-Pacific research at ING, in a report. .
The expected reopening of the country to tourists with the lifting of limits imposed to curb COVID-19 infections is also expected to boost growth.
On the negative side, Japan, which imports almost all of its oil, much of its food and miscellaneous products, has been hit by rising prices for energy and other commodities, in part due of the war in Ukraine.
Japan has been struggling for years against deflation or the vertiginous fall in prices. Weak wage growth and an aging and shrinking population have slowed economic activity and discouraged business investment.
Bank of Japan Governor Haruhiko Kuroda apologized on Tuesday for recently referring to a “tolerance for higher prices” among Japanese people, a comment interpreted as welcoming higher prices. Kuroda was grilled in parliament, where he told lawmakers his comment was inappropriate.
Kuroda has championed a policy of pushing near-zero inflation to around 2%, but progress has been slow until world prices for oil and other commodities have risen in recent months.
Some analysts say Japan has been steadily losing its competitive edge because it hasn’t done enough to foster innovation and unleash new sources of growth harnessed by the bureaucracies of yesteryear.
One source of concern is the plunging value of the yen, which is currently trading at a 20-year low of around 133 yen per US dollar.
Although a weak currency is a boon for Japanese exporters, increasing the value of overseas earnings, analysts say the weak yen also reflects a weak economy. Rising interest rates in the US and other countries relative to Japan, where interest rates are close to zero, will likely keep the yen weak for some time.
Prime Minister Fumio Kishida is pushing what he calls “new capitalism”. It announced the broad outlines of its strategy this week, aimed at reigniting growth by pushing digitalization, defense spending, start-ups and sustainable energy. He also invited investments, declaring in English, “Invest in Kishida”.
Former Prime Minister Shinzo Abe, Japan’s longest-serving leader, has pushed “Abenomics,” which focuses on super-easy loans meant to trigger inflation and thus promote growth. Some critics say that Abenomics has failed to build a strong economy and that its pitfalls are part of the reason behind the weak yen.
Yuri Kageyama is on Twitter https://twitter.com/yurikageyama