Japan Q3 GDP unexpectedly contracts at annualised rate of 1.2%

The yen’s slide to 32-year lows against the US dollar has exacerbated the cost-of-living strains in Japan. PHOTO: AFP

TOKYO – Japan’s economy unexpectedly shrank at an annualised rate of 1.2 per cent in the July to September period from the previous quarter.

It marked the first contraction in a year due to a slowdown in consumption and hefty import gains denting net exports, data showed on Tuesday.

The gross domestic product figure compared with economists’ median estimate for a 1.1 per cent expansion and a revised 4.6 per cent rise in the second quarter.

It translated into a quarterly decline of 0.3 per cent versus a forecast 0.3 per cent growth.

The weak figures highlighted the impact of a cooling economy and global inflation pressures that have prompted sweeping interest rate increases worldwide.

Japan has also been dealing with the challenge of the yen’s slide to 32-year lows against the US dollar, which has exacerbated cost-of-living strains by further lifting the price of everything from fuel to food items.

Japan acted in late September to prop up the currency for the first time in 24 years. The government continued to step into markets in October to rein in sharp slides in the currency, largely driven by the divergence between the Bank of Japan’s rock-bottom interest rates and sharply higher borrowing costs in the United States.

Further, Japan was hit by another Covid-19 wave in the summer, with the number of daily new cases hitting 200,000 in August.

While the government did not bring back Covid-19-related restrictions this time, the resurgence of infections led some people to refrain from going out. 

Prime Minister Fumio Kishida’s government is stepping up support for households to try to ease the cost-push inflation effects, with 29 trillion yen (S$283.5 billion) in extra spending in the budget.

Private consumption, which makes up more than half of the Japanese economy, the world’s third-largest, grew 0.3 per cent, against a consensus estimate for 0.2 per cent growth and slowing sharply from the previous period’s 1.2 per cent gain.

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