Japan economy ends two years of growth

Posted May 16, 2018

Japan's longest straight period of expansion in almost three decades ended in the first quarter of this year as the economy shrank at an annualized rate of 0.6 percent.

Under Prime Minister Shinzo Abe, the world's third-largest economy has picked up steam through a deflation-fighting stimulus program driven mainly by asset purchases by the central bank that are injecting billions of dollars into the economy each year.

The economy was stalled by stagnant private consumption, which was flat in the January to March period after an uptick of 0.2 per cent in the final quarter of past year.

"Globally, IT-related items have been in an adjustment phase, which weighed down Japan's exports and factory output", said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. In the first quarter exports expanded by 0.6% after 2.2% growth in the previous quarter.

The yen also strengthened against other major currencies on safe-haven buying, clouding the prospects for Japanese exporters.

Experts emphasized they viewed the first-quarter contraction as a pause rather than the beginning of a protracted downswing, with the global economy still picking up.

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Private residential investment plunged another 2.1 percent after a 2.7 percent fall in the previous quarter.

"The economy is unlikely to continue to contract further".

"The Japanese economy should see a modest recovery buoyed by the global economy, with exports in particular benefiting from this, helping Japan's GDP revert back to an uptrend from Q2 2018 onwards", he said in a commentary earlier this week.

Economists don't expect the period of contraction to last long.

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

The capital spending figures may presage data due on Thursday that is forecast to show core machinery orders, a leading indicator of capital expenditure, fell in March for the first time in three months.