Japan’s economy saw an unexpected contraction for the first time in a year on the back of surging import bills in the third quarter, caused by the yen’s plunge to multi-decade lows.
GDP in the July to September period shrank 1.2 per cent from the previous year. Japan faced a surge in Covid-19 cases during the summer that slowed a rebound in consumer spending for Asia’s largest advanced economy.
Economists expect growth to pick up towards the end of the year with the return of tourism and the rollout of Prime Minister Fumio Kishida’s $200bn spending package to ease the impact on households of soaring commodity prices and a weaker yen.
The fall in Japan’s gross domestic product contrasts with economists’ expectations of a 1.1 per cent rate rise and second-quarter growth of 4.6 per cent. The data translated to a real quarterly drop of 0.3 per cent, compared with forecasts of 0.3 per cent growth, according to preliminary figures released by the cabinet office on Tuesday.
Household spending continued to rise but only by 0.3 per cent compared with 1.3 per cent in the second quarter, as savings accumulated during the pandemic helped consumers weather rising living costs.
Export growth of 1.9 per cent was widely outpaced by a 5.2 per cent rise in Japan’s imports bill, reflecting the weaker yen and trade environment.
Since September, Japanese authorities have carried out multiple interventions to prop up the yen, which fell to a 32-year low last month because of a widening gulf between the Bank of Japan’s super-dovish monetary policy and tightening by most other big central banks.
Real gross domestic income also fell a sharper than expected 3.9 per cent during the quarter. Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute, said the drop indicated further downside risks to the economy, since sluggish wage growth would mean consumer spending might not grow strongly beyond the anticipated pent-up demand caused by the pandemic.
Economists expect Japan to outperform other advanced economies next year, since it still has room for further recovery from the pandemic and the economy will be supported both by government spending and the BoJ’s ultra-loose policy.
“Still, it is hard to be optimistic about the outlook for the Japanese economy just because of the stimulus measures, since the economic impact of tightening by central banks globally will start to be felt from next year and Japan’s economy will slow down if overseas economic conditions deteriorate,” Shinke said.
