Japan's Quarterly Economy Contracts As Energy Prices Soar

Japan's economy shrank at an annual rate of 1 per cent in the first quarter, as rising prices and COVID-19 restrictions deadened spending and investment, according to data released Wednesday.

Japan's real gross domestic product, or GDP, the sum of the value of a nation's products and services, contracted 0.2 per cent in January-March compared to the previous quarter, as household consumption and government investments fell, the Cabinet Office said. 

Russia's war in Ukraine has sent energy prices soaring, a big minus for resource-poor Japan, and the Japanese yen has nose-dived, trading at about 130 yen to the US dollar. In trade, higher energy prices have inflated the price of imports, weakening the usual boost from exports, according to data. 

The world's third-largest economy had managed to eke growth in the final quarter of last year, but the economy sank the quarter before that. 

Japan never had a lockdown but periodically put restrictions on businesses, mostly having restaurants and bars close early, to curb the spread of the coronavirus pandemic. The last such restrictions ended in March. 

Some medical experts say the nation is seeing a surge in COVID-19 cases since then, because of the more contagious omicron variant. Japan has recorded about 30,000 COVID-19-related deaths so far. 

The reintroduction of such restrictions to curb the spread of the infections and the impact of inflation putting a squeeze on household income are working to push growth downward, analysts say. 

But some expect an economic rebound in months ahead. 

“After a dismal start to the year, we think the economy will bounce back this quarter thanks to a recovery in consumer spending, particularly in services, following the full lifting of COVID-19 restrictions in Japan,” said Takayuki Toji, economist at SuMi TRUST.