Japan economy contracts for first time in six quarters
Japan’s economy shrank by 1.8 percent on an annual basis in the July-September quarter due to the blow to exports caused by US customs duties; This was the first decline in the last six quarters.
Government data released on Monday showed that while the decline was not as steep as expected, it could complicate the Bank of Japan’s plans to raise interest rates further.
Analysts are now focusing on how long it will take for the world’s fourth-largest economy to overcome the tariff impact and recovery.
The decline in gross domestic product was narrower than the average market estimate of 2.5 percent in a Reuters poll.
This follows revised growth of 2.3 percent in the previous quarter, when the economy received an extra boost from robust exports reflecting front-loaded shipments to the United States as Japan’s tariff negotiations continued.
Washington formalized a trade deal with Tokyo in September; He replaced the initial 27.5 percent duty on automobiles by imposing a 15 percent tariff on nearly all Japanese imports and threatening a 25 percent duty on most other goods.
Third-quarter data indicated a 0.4 percent quarter-on-quarter decline; This is better than the median forecast for a 0.6 percent contraction.
Private consumption, which accounts for more than half of economic output, rose 0.1 percent, matching the market forecast.
However, this calmed after a 0.4 per cent increase in the second quarter; This suggests that high food costs keep households reluctant to spend.
Net external demand, i.e. exports minus imports, reduced growth by 0.2 percent; On the other hand, it was a positive contribution of 0.2 points in the April-June period.
Capital spending, a key driver of private demand-driven growth, rose 1.0 percent in the third quarter, compared with a 0.3 percent increase in the Reuters survey.
The weak GDP data comes as new Prime Minister Sanae Takaichi’s government prepares a stimulus package to cushion the blow to households from rising living costs.
Takaichi’s close economic advisers likely cited a sharp GDP contraction as the reason for aggressive stimulus measures.
Analysts say the latest data may embolden those advisers to call for the BOJ to go slow in raising interest rates.
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