Japan economy shrinks for first time in 2 years

Sumitomo Mitsui's Kichikawa Sees Japan Economy Growing in Q2

Sumitomo Mitsui's Kichikawa Sees Japan Economy Growing in Q2

The economy contracted 0.2 percent quarter-on-quarter in the January-to-March period, compared with growth of 0.1 percent at the end of past year, the Japanese Cabinet Office said yesterday.

Economy Minister Toshimitsu Motegi said there was no change to the government's view that the economy was recovering moderately, predicting a resumption in growth to be driven mainly by private consumption and capital expenditure.

Private consumption, the largest part of the Japanese economy, was unchanged, a result that was in line with market expectations. In the first quarter exports expanded by 0.6% after 2.2% growth in the previous quarter.

Abe has launched a pro-spending policy blitz called "Abenomics" since he took office in late 2012, combining ultra-loose monetary policy and fiscal stimulus in a bid to pep up the former Asian economic powerhouse.

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Leading economist here said that while business spending is expected to increase looking ahead consumer spending will likely still remain pressured as households continue to tighten their purse strings amid stagnant wages. Some analysts have attributed the decline in GDP in Q1 to a global adjustment in electronic and IT-related demand and expect that the economy will return to growth in Q2 - a harsh winter may also have slowed growth.

Given Japan's reliance on export-led growth, trade friction brought on by President Donald Trump's efforts to trim the perennial USA trade deficit has raised uncertainty over the outlook for the economy.

However, economists believe the drop would be temporary.

"The economy is not headed for a recession", said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

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However, the outlook, as the government's figures show, remains hazy.

The aim has been to keep credit cheap and push prices higher to compel businesses and consumers to spend more.

This marks a distinct slowdown in projected growth for Japan's economy and the last time the nation posted negative growth was in the October-December quarter in 2015 when it contracted an annualized 1.1 percent.

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