Japan’s economy contracted at an annual rate of 1.8 percent during the first quarter of 2024, slightly better than initial estimates of a 2 percent contraction, according to the latest revised data from the Cabinet Office. The government attributes the upward revision to the rise in private sector investments from minus 0.5 percent to minus 0.4 percent and the slower decline in corporate capital spending.
Japan’s real gross domestic product (GDP) remained in the negative as exports and consumption saw a decline compared to the previous quarter. Japan’s economy declined 0.5 percent in Q1 of 2024 compared to Q4 of 2023, remaining unchanged from last month’s results. Private consumption, another key contributor to domestic demand which accounts for over 50 percent of the economy, also fell 0.7 percent.
In addition, the government revised nominal GDP down to a 0.03 percent increase from the 0.1 percent in the preliminary data. The data also revealed that nominal GDP increased at an annualized rate of 0.1 percent, slower than the previously reported 0.4 percent.
Read: ECB cuts interest rates for the first time since 2019, down to 3.75 percent from 4 percent
Slow wage growth remains a challenge
Wage growth has been slow in Japan while import prices increased amid the decline of the Japanese yen, posing further challenges to the country’s economy. Recent data from Japan’s Ministry of Health, Labour and Welfare reveals that real wages saw a 0.7 percent year-on-year decline in April, marking the 25th month of consecutive declines. However, unemployment has remained low at around 2.6 percent as the country faces a severe labor shortage.
In light of the positive revision of contraction in Japan’s economy, investor focus now shifts to the Bank of Japan’s policy meeting later this week for more insights into policy rate changes. Earlier this year, the central bank raised interest rates for the first time since 2007 to the range of 0 percent to 0.1 percent from negative 0.1 percent.
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