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Japan’s economy contracts, but at smaller rate than thought

TOKYO (AP) – The Japanese economy contracted in the first quarter, but at a slower pace than earlier estimated, the government said yesterday.

The world’s third-largest economy contracted at an annual rate of 0.5 per cent, according to Cabinet Office data. That was smaller than the 1.0 per cent contraction in the preliminary estimate for Japan’s real gross domestic product (GDP), released in May.

The annual rate shows how the economy would have grown if the quarterly rate were to continue for a year. Japan’s economy contracted 0.1 per cent in January-March from the previous quarter, better than the 0.2 per cent quarter-on-quarter contraction in the preliminary data.

Consumer spending and other private demand was stronger than previously thought.

The upward revision was a pleasant surprise for analysts.

“Looking ahead, we expect GDP to rebound in second quarter (Q2) mainly due to better private consumption, yet higher inflation on commodities will likely limit the gains in real terms,” Regional Head of Research Asia-Pacific at ING Robert Carnell said in a report.

People walk across the Shibuya scramble crossing as the sun sets behind the skyscrapers in Tokyo. PHOTO: AP

The expected reopening of the country to tourists as limits imposed to curb COVID-19 infections are lifted, should also boost growth.

On the negative side, Japan, which imports almost all its oil, much of its food and various products, has been slammed by rising prices for energy and other commodities, partly because of the war in Ukraine. Japan has for years been fending off deflation, or a spiraling down of prices. Low wage growth and an ageing and shrinking population have slowed economic activity and discouraged corporate investment.

Bank of Japan Governor Haruhiko Kuroda apologised on Tuesday for recently referring to a “tolerance for higher prices” among Japanese people, a comment interpreted as welcoming higher prices. Kuroda was grilled in Parliament, where he told legislators his comment was inappropriate.

Kuroda has championed a policy aimed at boosting near-zero inflation to around two per cent, but progress was slow until global prices for oil and other commodities surged in recent months.

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