Japan’s economy shrank by a worse-than-expected 0.5%

Tokyo – Japan’s economy shrank by a worse-than-expected 0.5 percent in the first three months of the year, official government data showed on May 16.

Economists forecast that gross domestic product in the world’s fourth-largest economy would contract by just 0.3 percent from the previous quarter.

Exports contracted 5.0 percent after growing 2.8 percent in the previous quarter, while imports fell 3.4 percent, data from the Cabinet Office showed.

Compared to the first quarter of 2023, GDP fell by 2% compared to a forecast decline of 1.2%.

A major earthquake on the Noto Peninsula on January 1 hit the economy and halted production at auto giant Toyota’s Daihatsu subsidiary.

Japan has been flirting with recession since last year, with zero growth — revised down from a 0.1 percent expansion on May 16 — between October and December.

In the previous quarter, from July to September, GDP experienced a major contraction of 0.9 percent, and was revised down from minus 0.8 percent on May 16.

A technical recession is usually defined as two consecutive quarters of GDP decline.

Japan, set to overtake Germany as the world’s third largest economy in 2023, has struggled with decades of stagnant growth and deflation.

Inflation is rising, however, and in March the Bank of Japan allowed interest rates to rise for the first time in 17 years. Last month, the BOJ kept rates on hold.

The BOJ has been a global outlier in adopting an ultra-loose monetary policy while other central banks have raised rates as they battled rising inflation.

The resulting wide divergence has added pressure on the yen, which has hit three-decade lows against the US dollar in recent weeks.

In late April and early May, the yen briefly rallied sharply against the greenback, fueling speculation that the Japanese government had intervened in the market.

Tokyo declined to comment on whether it had done so.

The Japanese government last intervened in markets to support the yen in October 2022, when it spent 6.3 trillion yen on foreign exchange intervention measures.