Japan’s Economy Sees Slight Contraction in First Quarter

Updated 11:45 AM GMT, May 6, 2021

TOKYO (AP) — Recent government data reveals that Japan’s economy contracted by 1.8% in the first quarter of this year, a slight improvement from the initial estimate of a 2.0% contraction. The revision was driven by an uptick in private sector investments, which decreased by 0.4% compared to the previous estimate of 0.5%.

The seasonally adjusted real gross domestic product (GDP) of Japan, which measures the value of the nation’s goods and services, remained in negative territory as exports and consumption declined from the previous quarter. The economy slipped by 0.5% quarter-to-quarter in the January-March period, according to the Cabinet Office.

The weak yen has led to a surge in tourism but has also made imports more expensive, particularly energy imports, putting pressure on the economy. Slow wage growth and rising import prices due to the weakening yen have contributed to sluggish consumer spending, a major component of Japanese economic activity.

In addition, a scandal involving improper vehicle model tests at major automakers like Toyota Motor Corp. has impacted production. Government officials have conducted raids on the headquarters of Honda Motor Co. and are expected to raid other automakers like Mazda Motor Corp. Toyota’s Chairman, Akio Toyoda, recently apologized for fraudulent testing practices that involved the use of inadequate or outdated data in collision tests and other safety checks.

The Bank of Japan’s upcoming monetary policy decisions are also being closely monitored by investors, especially in light of rising input costs for Japanese manufacturers. The central bank raised interest rates earlier this year for the first time since 2007, albeit marginally.

Despite these challenges, Japan’s unemployment rate remains relatively low at about 2.6%. However, the country faces a serious labor shortage as birth rates and marriage rates continue to decline. Some analysts warn that these demographic trends could have long-term implications on Japan’s economic output and global influence, potentially leading to security risks.

Looking ahead, Japan’s GDP is projected to fall to the fifth position globally, following the U.S., China, Germany, and India, according to the IMF.

Yuri Kageyama is on X: https://twitter.com/yurikageyama