The Japanese economy shrank at an annual rate of 2 percent in the first quarter of this year, as consumption and exports declined, Japan’s government said on Thursday.
Although unemployment has stayed relatively low in the world’s fourth-largest economy at about 2.6 percent, wage growth has been slow and prices have risen partly due to weakness of the yen against the US dollar.
Quarter-to-quarter, the preliminary seasonally adjusted GDP slipped 0.5 percent in the January-to-March period, Japan’s Cabinet Office said.
Photo by: Kazuhiro Nogi, AFP
The yen has been trading at three-decade lows recently, with the US dollar costing about ￥155.
That has helped tourism, but hurts spending power, especially for a nation that imports almost all its energy.
The results were generally worse than what analysts had forecast.
Sluggish consumer spending is a big problem since private consumption accounts for half of Japanese economic activity.
Also denting growth were the problems at carmaker Toyota Motor Corp’s subsidiary, although production is now back up.
Earlier this year, the Japanese government ordered Daihatsu Motor Co to halt production of its entire lineup, because of faked safety test results.
The disruptions of car production and sales due to the safety scandal brought down overall growth, but that means they would likely bounce back later in the year, ING Groep NV chief Asia Pacific economist Rob Carnell said.
“Monthly activity data already shows a gradual normalization since March,” Carnell said.
The latest data would be a challenge for Japan’s central bank on when to further raise interest rates, an action that is expected to come sooner or later, possibly in July.
Policymakers are likely to proceed with more caution in a weak economy.
The Bank of Japan raised interest rates earlier this year for the first time since 2007, but only to a range of zero to 0.1 percent from minus-0.1 percent.
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