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Japan’s economy contracts as energy prices soar

TOKYO (AP) – Japan’s economy shrank at a worse than expected annual rate of one per cent in the first quarter, as rising prices and COVID-19 restrictions sapped spending and investment, according to data released yesterday.

Japan’s real gross domestic product (GDP) contracted 0.2 per cent in January-March compared to the previous quarter, the Cabinet Office said. The world’s third-largest economy managed modest growth in the final quarter of last year, but the economy sank the quarter before that.

Russia’s war in Ukraine has pushed already high energy prices still higher, a big minus for resource-poor Japan. The Japanese yen weakened, trading at about JPY130 to the dollar, making imports relatively more expensive.

Japan never had a lockdown but periodically put restrictions on businesses. Some medical experts said the nation has seen a surge in COVID-19 cases since then, because of the more contagious Omicron variant. Japan has recorded about 30,000 COVID-19-related deaths so far.

The reintroduction of restrictions to curb the spread of the infections and the impact of inflation putting a squeeze on household spending power are pulling growth downward, analysts said.

But some expect an economic rebound in months ahead.

“After a dismal start to the year, we think the economy will bounce back this quarter thanks to a recovery in consumer spending, particularly in services, following the full lifting of COVID-19 restrictions in Japan,” an economist at SuMi TRUST Takayuki Toji said.

Gas prices shown at a gas station in Tokyo. PHOTO: AP