Published: Wed, May 22, 2019
Markets | By Otis Pena

Japan's economy grew 0.5% in first quarter

Japan's economy grew 0.5% in first quarter

Japan's unexpected growth spurt in the first quarter masked weakness in the economy just as policy makers prepare to hike the sales tax in October.

According to the Japanese government, the nation's GDP rose by 2.1 percent between January and March. Preliminary reports had found a mere 0.3% rise for that quarter, and in the previous quarter, Q3 2018, Japan had contracted 0.6%, according to economic information provider Fxstreet.

Major Japanese business organisations support going ahead with the planned tax hike, and top government spokesman Yoshihide Suga has recently said the government will carry out the plan unless a crisis on the level of the 2008 financial meltdown happens.

Despite the good news, it's still concerning that the most important components of the country's GDP were negative, especially the domestic spending.

"The economy has already peaked out, so we are likely to have a mild recession", he said.

Weak domestic demand caused imports to decline 4.6 per cent on the quarter - faster than a 2.4 drop in exports - which helped net exports to improve in the first quarter.

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"But when I look at the numbers closely, they are not strong", Hiroyasu Ando of Sumitomo Mitsui Banking said.

Corporate capital expenditures went down 0.3 percent, as many companies refrained from stepping up investment amid uncertainties over the course of overseas demand. "There are some worrisome factors".

There are growing calls from some former policymakers to delay the sales tax hike in the face of worsening domestic and external conditions. Economy Minister Toshimitsu Motegi said Monday there is no change in the government's plan to raise the tax.

While the GDP data, which was released by Tokyo's Cabinet Office on Monday, appeared to forestall immediate concerns that Japan is either in or headed for a recession, wider economic concerns have not evaporated given weak exports, weaker imports, depressed capital expenditure and downbeat consumer sentiment. Additionally, a higher Value-Added Tax could improve labour productivity - albeit, at the cost of lower consumer spending and services sector revenues for months ahead.

"The Japanese economy has come to a standstill", said Tsuyoshi Ueno, senior economist at the NLI Research Institute.

Many economists believe Japan's GDP growth could be zero in the second quarter.

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