Japan’s economy shrinks 2.0% in Q1 ’24

Japan’s economy contracted in the first quarter of 2024, posing a challenge for policymakers, especially the Bank of Japan (BOJ), which hinted at raising interest rates, CNN reported citing Reuters report on Thursday.

Preliminary data from the Cabinet Office on Thursday revealed a larger-than-expected 2.0 per cent annualised GDP contraction compared to the previous quarter, with a 0.5 per cent quarterly decline surpassing analyst forecasts of 0.4 per cent.

Private consumption fell by 0.7 per cent, exceeding forecasts and marking the fourth consecutive quarter of decline – the longest such streak since 2009, according to the data.

The first quarter likely represents the low point for the Japanese economy, commented Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities. Rising wages and tax cuts should stimulate a rebound this quarter, though uncertainty remains regarding spending in the service sector, he added.

Capital spending, a key driver of private demand, fell short of expectations, declining by 0.8 per cent. Despite strong corporate earnings, external demand also dragged on growth, subtracting 0.3 percentage points from GDP estimates.

Policymakers are counting on increasing wages, upcoming income tax cuts in June, and temporary disruptions from the Noto earthquake and production halts at Toyota’s Daihatsu unit to boost consumer spending.

The BOJ’s recent interest rate hike, the first since 2007, signals a shift away from its ultra-loose monetary policy. Despite the fragile economy, the central bank is expected to proceed cautiously with future rate increases.