Japan economy expected to shrink in Q1 due to weak consumption

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s economy likely contracted an annualised 1.5% in the January-March quarter as all key drivers of growth slumped due to an uncertain outlook, a Reuters poll showed, which will probably set back Bank of Japan efforts to raise interest rates.

Cabinet Office data due out at 8:50 a.m. on May 16 (2350 GMT on May 15) is expected to show the economy’s contraction would be equivalent to quarterly decline of 0.4%, according to the poll of 17 economists.

The decline followed growth of 0.4% annualised in the last three months of 2023, with the main pillars of GDP collapsing and leaving no growth engine for the January-March quarter.

“The trend of thrifty consumers remains strong due to rising living costs likely being exacerbated by the yen weakening,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who predicted the overall economy would contract at 1.2% annualised in the January-March period.

Private consumption, which makes up more than 50% of the economy, likely fell 0.2% in the quarter as consumers tightened belts to guard against the rising costs living.

The earthquakes that struck the Noto peninsula at the start of this year also undermined output and consumption. As well, a scandal at Toyota (NYSE:)’s compact car unit Daihatsu led to the suspension of output and shipments.

Capital expenditures also fell 0.7% quarter-on-quarter as companies remained slow to invest their hefty profits in plants and equipment, such as labour-saving technology to overcome labour shortages.

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External demand, or net exports, which means shipments minus imports, likely shaved 0.3 percentage points off GDP growth. Domestic demand probably fell for a fourth straight quarter.

The corporate goods price index, a key gauge of prices corporations charge against each other, probably rose 0.8% in April year-on-year, keeping the pace unchanged from March.

The CGPI data will be released at 8:50 a.m. on May 14 (2350 GMT on May 13).

The CGPI, broadly equivalent to wholesale prices, likely rose 0.3% month-on-month in April, accelerating slightly from the 0.2% rise for March, underscoring persistent inflation that is boosting the costs of living and doing business.

(This story has been refiled to say quarterly decline, not monthly, in paragraph 2)

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