Japan’s economy is expected to contract in Q1 due to weak consumption

By Tetsushi Kajimoto

TOKYO (Reuters) – Japan’s economy may have contracted an annualized 1.5% in the January-March quarter as all key drivers of growth slumped due to an uncertain outlook, a Reuters poll showed, which could set back efforts by the Bank of Japan to raise interest rates. .

Cabinet Office data to be released at 8:50 a.m. on May 16 (2350 GMT on May 15), according to a poll of 17 economists, expected the economy to shrink by a quarter-on-quarter contraction of 0.4%.

Following growth of 0.4% in the last three months of 2023, the main pillars of GDP collapsed and did not leave the growth engine in the January-March quarter.

„The trend of frugal consumers is strong as living costs rise as the yen weakens,” said Takeshi Minami, chief economist at Norinchukin Research Institute, who forecast the overall economy to contract 1.2% in the January-March period. .

Private consumption, which accounts for more than 50% of the economy, may have fallen 0.2% in the quarter as consumers tightened their belts to protect against rising living costs.

Earthquakes in the Noto Peninsula earlier this year also undermined production and consumption. Also, a scandal at Toyota’s small car unit Daihatsu led to the suspension of production and exports.

Capital spending also fell 0.7% in the quarter, as companies slowed to invest more of their profits in plant and equipment such as labor-saving technology to deal with labor shortages.

Foreign demand or net exports, i.e. exports minus imports, can reduce GDP growth by 0.3 percentage points. Domestic demand fell in the fourth quarter.

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The corporate goods price index, a key measure of the prices corporates charge against each other, rose 0.8% year-on-year in April, perhaps unchanged from March.

The CGPI data will be released at 8:50 am on May 14 (2350 GMT on May 13).

The CGPI, which equates to wholesale prices, may have risen 0.3% month-on-month in April, accelerating slightly from March’s 0.2% rise, underscoring steady inflation that is pushing up the cost of living and doing business.

(This story has been reprinted to say quarterly decline in paragraph 2, not monthly)

(Reporting by Tetsushi Kajimoto; Editing by Tom Hoke)

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