Revisions confirm Japan GDP contraction, backing Bank of Japan caution

[TOKYO] Japan’s economy contracted in the first quarter of the year by less than initially estimated on better inventory and consumption figures, while still backing caution by the Bank of Japan (BOJ) as it weighs its policy path amid heightened uncertainty.

Gross domestic product shrank at an annualised pace of 0.2 per cent in the three months to March, the Cabinet Office said on Monday (Jun 9), compared with a 0.7 per cent retreat in preliminary data. Economists had expected that initial figure to stand.

Personal consumption rose 0.1 per cent, while business spending gained 1.1 per cent. Inventories contributed 0.6 percentage point to growth, while net exports posted a drag of 0.8 percentage point.

The revised figures confirmed that the world’s fourth-largest economy contracted even before US President Donald Trump added to the headwinds facing the economy by expanding his tariff measures in April. For the BOJ, the data are still likely to support a wait-and-see approach for now, particularly after it slashed its growth forecast for this year at the last policy meeting.

BOJ officials remain highly vigilant about the tariff impact, with governor Kazuo Ueda calling uncertainties “extremely high”. He warned last week that tariffs could affect Japan’s economy through multiple channels, pledging to evaluate economic and price developments through a broad array of indicators.

Most economists expect the central bank to delay further rate hikes, with a majority anticipating no change in coming months. The BOJ next sets policy on Jun 17.

Japan is contending with a barrage of US tariffs, including a blanket 10 per cent duty on its goods that will rise to 24 per cent in early July barring a trade deal. Sector-specific levies are proving especially burdensome, most notably the 25 per cent duties on automobiles and auto parts, which are eroding exporters’ profit margins. BLOOMBERG