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Japan's economy shrinks significantly in Q1, GDP contracts 2.9% year-on-year, exceeding expectations

TraderKnows
TraderKnows
07-01

Japan's government released the first quarter GDP data this Monday, revealing a contraction far beyond the expected 1.8%, reaching 2.9%.

Japan's economy shrank more in the first quarter than initially expected, with revised GDP data released by the government on Monday indicating that the economy is much more fragile than anticipated.

The data shows that GDP contracted by 2.9% year-on-year in the January-March quarter, significantly higher than the previously estimated 1.8%. This revision is a rare and unexpected move by the Japanese government aimed at reflecting corrections in construction order data.

The contraction in first-quarter GDP was mainly due to deteriorating consumer spending, caused by stagnant wages and high inflation. Although this trend is expected to improve in the second quarter with increasing wages, the extent of its support to the economy remains to be seen.

The downward revision in growth is expected to be reflected in the Bank of Japan's annual economic forecast, which may also delay any potential interest rate hikes by the central bank.

Following the revised publication on Monday, the yen weakened, with the dollar rising 0.1% against the yen to 160.99, the yen's weakest level since 1986.

However, the Bank of Japan may refrain from taking a tough stance, which boosted the Japanese stock market, with the Nikkei 225 index rising by 0.9%.

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Economic Recovery

Economic recovery refers to the phase where, following an economic downturn or crisis, there's a gradual increase in production and employment, businesses see improved profits, and consumer and investment activities rebound, leading to a gradual return to a normal economic state.

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