Japan’s economy shrank more than expected in the first quarter as a slow vaccine rollout and new COVID-19 infections hit spending on items such as dining out and clothes, raising concerns the country would lag others emerging from the pandemic.
Capital expenditure also fell unexpectedly and export growth slowed sharply, a sign that the world’s third-largest economy is struggling for drivers to pull it out of the doldrums.
The reading and extended state-of-emergency curbs have heightened the risk that Japan might shrink again in this quarter and slide back into a recession, defined as two consecutive quarters of recession, some analysts say.
Photo: EPA-EFE
“Global chip shortages caused a marked slowdown in exports, putting a drag on capital spending as well,” SMBC Nikko Securities Inc chief market economist Yoshimasa Maruyama said. “Consumption will probably remain stagnant, raising risks of an economic contraction in the current quarter.”
The economy shrank an annualized 5.1 percent in the first quarter, more than the forecast 4.6 percent contraction and following an 11.6 percent jump in the previous quarter, government data showed yesterday.
The decline was mainly due to a 1.4 percent drop in private consumption, as state-of-emergency curbs to combat the pandemic hit spending for clothing and dining out.
The bigger-than-expected contraction reflected a surprise 1.4 percent drop in capital expenditure, which confounded market expectations for a 1.1 percent increase as companies scaled back spending on equipment for machinery and vehicles.
While exports grew 2.3 percent thanks to a rebound in global demand for vehicles and electronics, the pace of increase slowed sharply from the previous quarter’s 11.7 percent gain, a worrying sign for an economy still reeling from weak domestic demand.
Domestic demand knocked 1.1 percentage points off of its GDP, while net exports shaved off 0.2 percentage points, the data showed.
Despite massive monetary and fiscal stimulus, Japan’s economy slumped a record 4.6 percent in the fiscal year that ended in March, the data showed.
Japanese Minister of Economy, Trade and Industry Yasutoshi Nishimura blamed the weak GDP reading mainly on the curbs to combat the pandemic, adding that the economy still had “potential” to recover.
“It’s true that service spending will likely remain under pressure in April to June, but exports and output will benefit from a recovery in overseas growth,” he told reporters.
Japan’s economy expanded for two consecutive quarters after its worst post-war slump in the second quarter of last year, due to the initial hit from the pandemic.
The export-driven recovery came to a standstill as consumption took a hit from a spike in new virus strains that forced the government to reimpose curbs just 10 weeks before the Tokyo Olympic Games.
The US dollar was trading at NT$29.7 at 10am today on the Taipei Foreign Exchange, as the New Taiwan dollar gained NT$1.364 from the previous close last week. The NT dollar continued to rise today, after surging 3.07 percent on Friday. After opening at NT$30.91, the NT dollar gained more than NT$1 in just 15 minutes, briefly passing the NT$30 mark. Before the US Department of the Treasury's semi-annual currency report came out, expectations that the NT dollar would keep rising were already building. The NT dollar on Friday closed at NT$31.064, up by NT$0.953 — a 3.07 percent single-day gain. Today,
‘SHORT TERM’: The local currency would likely remain strong in the near term, driven by anticipated US trade pressure, capital inflows and expectations of a US Fed rate cut The US dollar is expected to fall below NT$30 in the near term, as traders anticipate increased pressure from Washington for Taiwan to allow the New Taiwan dollar to appreciate, Cathay United Bank (國泰世華銀行) chief economist Lin Chi-chao (林啟超) said. Following a sharp drop in the greenback against the NT dollar on Friday, Lin told the Central News Agency that the local currency is likely to remain strong in the short term, driven in part by market psychology surrounding anticipated US policy pressure. On Friday, the US dollar fell NT$0.953, or 3.07 percent, closing at NT$31.064 — its lowest level since Jan.
Hong Kong authorities ramped up sales of the local dollar as the greenback’s slide threatened the foreign-exchange peg. The Hong Kong Monetary Authority (HKMA) sold a record HK$60.5 billion (US$7.8 billion) of the city’s currency, according to an alert sent on its Bloomberg page yesterday in Asia, after it tested the upper end of its trading band. That added to the HK$56.1 billion of sales versus the greenback since Friday. The rapid intervention signals efforts from the city’s authorities to limit the local currency’s moves within its HK$7.75 to HK$7.85 per US dollar trading band. Heavy sales of the local dollar by
The Financial Supervisory Commission (FSC) yesterday met with some of the nation’s largest insurance companies as a skyrocketing New Taiwan dollar piles pressure on their hundreds of billions of dollars in US bond investments. The commission has asked some life insurance firms, among the biggest Asian holders of US debt, to discuss how the rapidly strengthening NT dollar has impacted their operations, people familiar with the matter said. The meeting took place as the NT dollar jumped as much as 5 percent yesterday, its biggest intraday gain in more than three decades. The local currency surged as exporters rushed to