From January to March, Japan’s economy boosts by 1.6% in consumption and tourism.

The Japanese economy has shown signs of recovery from the impact of the COVID-19 pandemic, as the government reported an annualized real growth rate of 1.6% for the period from January to March. The growth was largely driven by robust consumer spending and the return of inbound tourism. This marks the first quarterly increase, in contrast to the previous two quarters at the end of 2020, when the GDP contracted and exports plummeted. However, the latest data exceeded expectations, with a 0.4% increase in inflation-adjusted real GDP from the October-December quarter.

The government predicts that Japan’s economy will grow by 1.2% in real terms in FY2022, making it the second consecutive year of growth. The result surpassed the average market forecast by economists, who predicted an annual increase of 1.1% for the January-March quarter in a survey conducted by the Japan Center for Economic Research. Yuichi Kodama, the chief economist at the Meiji Yasuda Research Institute, stated that the recovery of consumer demand is expected to underpin the economy. He also explained that rising prices had a negative impact on consumers, but the expected increase in wages and a decrease in inflation would support private consumption.

Private consumption rose by 0.6%, representing the fourth consecutive quarter of increase. The demand for cars and durable goods remained strong, while consumers increased their spending on services such as dining out. Capital investment increased by 0.9%, the first increase in two quarters, mainly supported by an increase in automobile-related investment. Meanwhile, exports fell for the first time in nearly three years, affected by sluggish shipments of automobiles and chip-making machinery. Import also fell by 2.3%, adding uncertainty to the economic outlook amid aggressive interest rate hikes in the US and Europe.

Despite inflation remaining above the BOJ’s annual target of 2%, the Japanese central bank is not in a hurry to raise interest rates to counteract the trend of global monetary tightening. The BOJ has argued that most of the inflation is due to higher import costs, not higher demand. The government is cutting utility bills for households, but Prime Minister Fumio Kishida and Bank of Japan Governor Kazuo Ueda are closely monitoring whether the momentum will continue, especially with this year’s spring wage negotiations expected to reach their best results in almost 30 years. The nominal GDP increased by 1.7%, or an annualized rate of 7.1%, the largest increase since the July-September quarter of 2020.

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