Japan’s economy rebounds on healthy consumption as COVID restrictions ease and tourists arrive

Japan’s economy grew 1.6% annually in the quarter ended March

From

YURI KAGEYAMA ` Business journalist

May 16, 2023 11:38 pm ET

• 2 minutes read

TOKYO – Japan’s economy grew 1.6% annually in the quarter ended March as private demand rebounded after the easing of COVID-19-related restrictions, according to data released on Wednesday.

Real gross domestic product, which measures the total value of a country’s products and services, grew 0.4% quarter-on-quarter in the January-March period in the world’s third-largest economy, the government’s cabinet office said.

That was the strongest GDP growth since April-June 2022, up 1.1%. It was also better than the market consensus forecast of 0.2%.

The annualized pace shows how big the growth would have been if what was seen during the quarter had continued for a year.

The main contributor to growth was private demand, which rose by 3.1% annually, with consumer spending and private investment showing a strong rebound. The recent opening of borders to tourists and other inbound travelers has also contributed to an increase in consumption. Public demand grew 1.8% year-on-year.

“Japan’s economy appears to be on a gradual recovery path despite sluggish global demand,” said Robert Carnell, Asia Pacific regional research director at ING.

Some analysts believe that such signs of recovery will prompt the Bank of Japan to take action to change policy and seek higher interest rates. The Bank of Japan’s Policy Board meets next month.

On the negative side, exports slowed and weighed on growth as a result of the slowing global economy. Japan’s exports fell 15.6% on an annualized basis from January to March.

While much of the world, including the United States and Europe, is focused on inflationary pressures, Japan is more cautious about approaching inflation because for decades the country has suffered from the opposite problem: deflation when prices fall.

Electricity bills have recently been increased across the country. While not directly impacting core inflation, analysts say the move should have some impact to boost inflation.

The relatively upbeat numbers for Japan’s economy may even help boost Prime Minister Fumio Kishida’s public image, which has seen its ups and downs. There is speculation that Kishida could call snap general elections later this year.

Kishida’s ruling Liberal Democratic Party has ruled Japan almost continuously since the end of World War II. In recent years, it has hardly faced any serious challenges due to the fragmented opposition.

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Yuri Kageyama is on Twitter: https://twitter.com/yurikageyama