According to a Reuters poll, Japan’s economy shrank by an annualised 1.5% in the January–March quarter as all major growth drivers declined as a result of an unclear outlook. This will likely impede the Bank of Japan’s efforts to raise interest rates.

According to a survey of 17 experts, Cabinet Office data, which is scheduled for release on May 16, is anticipated to demonstrate that the economy’s contraction would be comparable to a monthly fall of 0.4%.

The collapse came after the final three months of 2023 saw growth of 0.4% annualised, with the primary drivers of GDP falling and leaving no growth engine for the January–March quarter.

Takeshi Minami, chief economist at Norinchukin Research Institute, estimated that the entire economy would decrease at 1.2% annualised in the January–March quarter. “The trend of thrifty consumers remains strong due to rising living costs likely being exacerbated by the yen weakening,” Minami said.

Since consumers tightened their belts to protect themselves from the growing expense of living, private consumption—which accounts for over 50% of the economy—likely decreased by 0.2% during the quarter.

This year’s early earthquakes that rocked the Noto peninsula also had a negative impact on productivity and consumption. Additionally, production and exports were halted due to a controversy at Daihatsu, Toyota’s division for small cars.

Additionally, capital expenditures decreased by 0.7% from the previous quarter as businesses continued to take their time investing their substantial earnings on machinery and facilities, including labor-saving technologies to address the labour shortage.

GDP growth was probably reduced by 0.3 percentage points by external demand, or net exports, which are defined as shipments less imports. Most likely, domestic demand declined for a fourth consecutive quarter.

The pace of the 0.8% year-over-year increase in April was likely maintained from March by the corporate products price index, a crucial indicator of the prices that businesses charge one another.

On May 14, the CGPI data will be made available.

The wholesale pricing index, or CGPI, which is roughly similar to monthly prices, probably increased by 0.3% in April compared to a 0.2% increase in March. This indicates that inflation is still there and is driving up living and business expenses.

(Adapted from Reuters.com)

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