Japanese Economy Contracts

The Japanese economy has come to the end of its best period of sustained economic expansion since the 1980s. Results for Q1 2018 show that the economy shrank by 0.6% on an annualised basis, bringing to an end two years of growth. The slowdown was more marked than expected; analysts had expected the contraction to come in at 0.2%. Expressed as the change from Q4 2017, the contraction comes in at 0.2% following on from an expansion of 0.1% in Q4.

The contraction in the nation’s quarterly performance has been blamed on a decline in the demand from consumers and a reduction in capital expenditure. Domestic demand in Japan is the dominant term in the economy, accounting for 60% of the nation’s output.

The Japanese economy remains the third largest in the world behind the USA and China and the nation’s GDP is estimated to be about $4.9 trillion. It is a major exporting country noted for electronic goods, automobiles and ships amongst other things. Some analysts have attributed the decline in GDP in Q1 to a global adjustment in electronic and IT-related demand and expect that the economy will return to growth in Q2 – a harsh winter may also have slowed growth.

A potential reason for the drop-off in capital expenditure has been a decline in business sentiment around the world as a result of strains provoked by the smouldering trade war between the world’s two largest economies which has the potential for significant knock-on effects in other economies. If this analysis is correct, capital expenditure may not pick-up until the US-China trade disputes have been resolved.

It is thought unlikely that the Bank of Japan will make any adjustments to its monetary policy on the back of one quarter’s data, particularly since opinion is divided on the chances of Japan falling into a technical recession (two consecutive quarters when the economy contracts).

Dr. Mike Campbell is a British scientist and freelance writer. Mike got his doctorate in Ghent, Belgium and has worked in Belgium, France, Monaco and Austria since leaving the UK. As a writer, he specialises in business, science, medicine and environmental subjects.