Markets

Japan's economy just shrunk for the first time in over 2 years

Japan's economy just shrunk for the first time in over 2 years

Antagonisms between Washington and Beijing over trade also threaten to hurt the economy indirectly given Japan's importance as a source of parts and technology for products made or assembled in China.

However, a breakdown of the data shows export growth is losing momentum, expanding just 0.6 percent in the first quarter after growth of 2.2 percent in the fourth quarter. However, there are concerns that trade friction with the USA could affect demand for exports.

Japanese government officials expect the decline to be temporary.

"Globally, IT-related items have been in an adjustment phase, which weighed down Japan's exports and factory output", said SMBC Nikko Securities economist Yoshimasa Maruyama.

Economists say while the contraction is temporary, the rebound will not be almost as strong as previous quarters.

The negative reading put an end to a nine-quarter expansion streak, which was the longest sequence of growth since a 12-quarter run between April-June 1986 and January-March 1989, according to Reuters.

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Consumer spending fell marginally, registering a decline of less than one percentage point in the first quarter.

Capital investment was down 0.1 percent.

On a seasonally adjusted annualized basis, GDP was down 0.6% - again missing forecasts for a decline of 0.1% following the downwardly revised 0.6% gain in the previous three months. But with wage increases lagging inflation, consumer spending has remained flat, the latest data showed.

"The economy is unlikely to continue to contract further".

Experts emphasized they viewed the first-quarter contraction as a pause rather than the beginning of a protracted downswing, with the global economy still picking up.

Under Prime Minister Shinzo Abe, the world's third-largest economy has picked up steam through a deflation-fighting stimulus program driven mainly by asset purchases by the central bank that are injecting billions of dollars into the economy each year.