Economy

Japan’s Economy Shrinks 2% in Jan.-March

Yomiuri Shimbun file photo
A Cabinet Office building in Chiyoda Ward, Tokyo

Jiji Press

17:46 JST, May 16, 2024

TOKYO (Jiji Press) — Japan’s economy shrank at an annualized rate of 2% in January-March in inflation-adjusted real terms, the first drop in two quarters, the Cabinet Office said Thursday.

The economy was hit by fraudulent testing scandals at some automakers, whose impact spread to private consumption, exports and corporate capital expenditures.

The contraction, which stood at 0.5% on a nonannualized basis, also stemmed from stalled economic activities in areas affected by the Jan. 1 Noto Peninsula earthquake in central Japan.

In nominal terms, the country’s GDP grew 0.1% for an annualized increase of 0.4%.

The annualized nominal GDP reached around ¥599 trillion, approaching the target of ¥600 billion set in 2015 by then Prime Minister Shinzo Abe’s administration. But the result was driven mainly by price increases, making it difficult for many to feel the impact of economic growth.

Private consumption, the pillar of domestic demand, slid 0.7% in real terms. Dampened by falls in auto and smartphone sales and electricity use, it marked a fourth successive quarterly drop for the first time since the four-quarter period through March 2009, during which U.S. investment bank Lehman Brothers collapsed.

Service consumption declined, including spending on accommodations and leisure activities. But financial services posted growth, possibly lifted by the start of the new Nippon Individual Savings Account, or NISA, tax exemption program for small-lot investors in January this year.

Exports dived 5%, marking the first drop in four quarters and the steepest decline since April-June 2020, soon after the start of the COVID-19 pandemic. The slump followed production halts at some automakers.

Imports fell 3.4%, pulled down by sluggish imports of smartphones, as well as decreasing crude oil and liquefied natural gas imports amid growing tensions in the Middle East.

Corporate capital spending fell 0.8%, reflecting the suspension of commercial vehicle shipments.