Finance & Economics

Japan’s Economy Contracts

During the first quarter of the current year, Japan’s economy contracted.

Japan’s Economy Contracts

The mentioned result is related to circumstances such as a decrease in domestic consumption in the specified Asian country and a drop in external demand for goods and services from this state. Against the specified background, new tasks of stimulating the economy are being formed and formulated, which Japanese politicians will have to solve. It is also currently known that the central bank of Japan intends to raise interest rates from almost zero.

On Thursday, May 16, the Cabinet Office of the Asian country published preliminary data on the dynamic gross domestic product (GDP) for January-March of the current year. According to relevant information, Japan’s economy shrank by 2% year-on-year last quarter. This is not a catastrophic drop in the indicator, but still, a fact that is objective and clearly indicates a negative trend. It is also worth noting that analysts interviewed by the media predicted that the mentioned drop would be recorded at 1.5%. The economic reality turned out to be less optimistic than the preliminary expectations regarding its condition.

The downwardly revised data indicate that Japan’s GDP showed almost no growth in the fourth quarter of last year.

Private consumption, which accounts for more than half of the Asian country’s economy, fell by 0.7% in January-March 2024. Experts interviewed by the media predicted that this indicator would show a decrease of 0.2%. It is worth noting that the decline in private consumption in Japan has been observed for the fourth quarter in a row. In this case, the longest negative tendency of a corresponding nature has been recorded since 2009.

Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities, says Japan’s economic system hit the bottom in the first quarter of the current year. According to the expert, the probability of a subsequent recovery, implying an improvement in the present state of affairs, is at a high level due to expecting a wage rise. At the same time, the economist noted that currently there is uncertainty about the consumption of services.

Capital spending, which is the main driver of private demand, fell by 0.8% in Japan in January-March 2024. At the same time, analysts interviewed by the media predicted that the corresponding indicator would show a decrease of 0.7%. Also, special attention should be paid to the fact that the mentioned indicator was recorded against the background of a high level of corporate earnings.

External demand, which analysts sometimes refer to as exports minus imports, lowered the GDP estimate by 0.3 percentage points in the first quarter of 2024.

Japanese politicians expect that salary increases and income tax cuts from June will be positive factors in stimulating the economy. Also, at present, the leadership of the Asian country is convinced that the slowdown in economic growth associated with the earthquake in the Noto area this year and the suspension of the Toyota Daihatsu operations unit will cease to be such a sensitive circumstance.

At the same time, there is a pessimistic mood in the Japanese consumer environment. Against the background of a sharp drop in the yen to levels that were last recorded more than 30 years ago, concerns about the rising cost of living have significantly increased. Against the background of a corresponding vision of the prospects of the near future, reducing consumption is a logical process.

Hiroshi Miyazaki, senior research fellow at Itochu Research Institute, said that rising prices, especially in the category of goods for daily necessities, have become a factor in the negative impact on consumer sentiment.

In March of the current year, the Bank of Japan raised interest rates. The financial regulator of the Asian country has made a corresponding decision for the first time since 2007. Moreover, this decision of the Bank of Japan has an important symbolic meaning, indicating the rejection of the policy of negative interest rates. There are widespread expectations in the expert community that the financial regulator of an Asian country will not rush to unwind easy money conditions. The corresponding approach of the Bank of Japan is explained by the instability of the economic system.

Nobuyasu Atago, chief economist at the Rakuten Securities Institute for Economic Research, says that the Asian country’s financial regulator cannot ignore GDP data for the first quarter of the current year. According to the expert, for the Bank of Japan to take any significant actions and make substantial decisions that change the content of monetary policy, it needs to wait for statistical information for the second quarter of 2024, which will be released in August.

Economist Taro Kimura says that the GDP of the Asian country shrank in January-March of the current year due to one-off factors. According to the expert, this result will not be a reason for Japan’s financial regulator to abandon the normalization of monetary policy.

It is worth noting that in the first quarter of 2024, positive news was recorded in the Asian country, which in one way or another has an impact on the economy. For example, local companies have concluded negotiations with trade unions, promising the most significant salary increase in the last 30 years. At the same time, Hiroshi Miyazaki says that wage rise and price growth will push against each other.

As we have reported earlier, Japan’s Economy Ministry to Support Country’s Chip Sector.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.