Japan’s economy shrinks as consumer spending stallsーNHK WORLD-JAPAN NEWS
With uncertainty lingering over the global economy, Japan’s government has released growth data for the first quarter of this year and the numbers show the economy has taken a step back. Yes, the country’s GDP shrank from January to March, the first contraction in four quarters. We turn now to Yuko Fushima from our business desk. Yuko, what’s pulling down the economy? Well, first off, important to note that this slowdown was not directly caused by US tariffs. The additional levies had not yet taken full effect in the reporting period. So, with that in mind, preliminary figures show gross domestic product contracted by an annualized 7/10en of a percent in real terms compared to the previous quarter. The last time the economy shrank was in the January March period of 2024. In that case, GDP was weighed down by production halts in automakers after authorities learned they were rigging certification tests. The breakdown shows private consumption, which makes up more than half of GDP, grew just 0.4%. High prices of rice and other food, caused people to hold back on spending. Exports fell 6/10en of a percent while imports climbed 2.9%. The wider gap between the trade figures contributed to the overall negative figure. One bright spot, corporate capital investment climbed 1.4%. Robust spending on software and semiconductor related equipment played a role here, contributing to a fourth straight quarterly gain. With higher prices leading to tighter pur strings, store managers are doing their best to hold on to their regular customers. Sometimes that requires an incentive. The budget haircut chain raised prices in February. A basic cut now cost $960, up about 30. Worried that the price hike would scare off customers, it expanded a discount offer. Now all customers who return by the end of the following month get 60 cents shaved off their next haircut. I’m living alone, so if the prices of goods go up, I only have myself to depend on to make ends meet. Sometimes it does get difficult. Thanks to the discount service, though, this man says he will probably be coming back. The company says other customers seem to share that view with no loss of business since raising prices. Looking at the past 3 months, we have not seen a month where we lost many customers, the data shows sales at 101.7% compared to the previous year. In fact, with inflation starting to bite, the haircut salon chain is hopeful the discount service will help expand sales. I talked to an economist about why people are not spending. He says this trend started in the October December quarter. I think people are refraining from buying because of inflation. This situation has been going on for half a year. If people think prices will go up in the future, they will buy. But if their incomes don’t go up while prices are rising, the quantity of goods they can buy will decrease. They have no option but to reduce the amount they buy. It’s just impossible to add anything to their shopping list. Seto says although the latest data show a contraction in growth, worse is yet to come. Unlike the January to March period, we will see negative growth as aspects of the economy worsen. The real impact of Trump’s tariffs will be felt across Japan’s economy in the April to June quarter. Because the US raised its levies, I think it is inevitable that we will see shipments from Japan to the US decline greatly. If personal consumption was recovering steadily, it could make up for the loss in exports. But unfortunately, I predict that the consumption trend will still be weak. Looking further ahead, Silito is a bit more hopeful. He predicts that after two negative GDP readings, Japan will see positive growth in the July to September quarter this year with prices coming down. Prices of fresh food surged. The price of rice also jumped, but this has now stopped climbing and the yen is getting stronger. So that means import prices will gradually come down. So I expect the overall consumer price index to decline. Cautions this more positive scenario will only play out if the Trump administration refrains from further tariff measures targeting Japanese goods. And that is something no one can predict.
Growth in the first quarter contracted for the first time in a year as rising prices put household budgets under stress. But that was before US tariffs took full effect … economists expect next quarter to be even worse. #business #japan #tariffs #usa
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