Japan’s economy showed scant signs of a recovery with a narrower-than-estimated contraction, leaving plenty of reason for continued caution among policymakers, as the Bank of Japan (BOJ) eyes the timing of its next interest rate hike.
GDP shrank at an annual pace of 1.8 percent in the three months through March compared with a 2 percent retreat reported in preliminary data, the Japan’s Cabinet Office said yesterday.
Economists had forecast the updated figures would be unchanged.
Photo: EPA-EFE
Consumers and companies are cutting back on spending, and unsold supplies are building up on warehouse shelves, as the inflation trend continues to crimp outlays in real terms, data showed.
“The data confirmed weakness in consumption. A breakdown shows spending on durable goods was weak, which I think reflected the impact of the Daihatsu problem on auto purchases,” Daiwa Securities economist Toru Suehiro said. “The BOJ doesn’t have a choice but to be cautious about the economy.”
Personal consumption data were left unchanged at minus-0.7 percent, marking a fourth quarter of decline, while business spending figures were revised to minus-0.4 percent from a preliminary decline of 0.8 percent.
Inventories added 0.3 percentage points to growth, while net exports were tweaked to reflect a slightly larger drag on the economy.
A rebound in growth in the current quarter is widely expected, as the economy recovers from the effects of one-off factors, including a New Year’s Day earthquake northwest of Tokyo.
An auto production halt due to a certification scandal also weighed on growth. While output has since been restored, a fresh scandal might exert a drag on the current quarter.
Among risks to the outlook, households are set to see a rise in utility costs, as the government phases out subsidies.
Meanwhile, workers have seen declines in real wages for more than two years, while retirees on fixed income have been hit even harder, as they cope with inflation at or above the BOJ’s 2 percent target.
Higher costs for imports due to the yen’s slump might further lift food and energy prices.
Still, analysts expect real wages adjusted for inflation to turn positive in coming months after annual wage talks resulted in pledges by large companies to lift pay by more than 5 percent.
The weak yen also has some positive effects for the economy, boosting corporate earnings abroad and inbound tourism.
The BOJ is likely to discuss the reduction of its government bond purchases as early as this week, as it continues to normalize its policy following its historic interest rate hike in March, people familiar with the matter said.
Economists expect the central bank to hold its benchmark policy rate steady at a two-day meeting concluding on Friday, with many predicting a hike by October.
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