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GDP marks first contraction in 9 quarters

16 May 2018

Business spending sank 0.1% on quarter, well shy of forecasts for an increase of 0.4% and down from 0.6% in the fourth quarter of 2017.

But potential fallout from Sino-U.S. trade frictions and global protectionism cloud the outlook for Japan's export-reliant economy in the coming quarters, they say.

The poor first quarter snapped a string of eight straight quarters of expansion for the Japanese economy, which had marked the longest such streak in more than three years.

Japan's economy last posted negative growth in the October-December quarter in 2015 when it contract an annualized 1.1 percent.

But economists believe the drop would be temporary.

"It is certain that the heavy snowfall in January and February and rises in fresh vegetable prices reduced disposable income but still (private consumption) is weak", said SMBC Nikko Securities chief market economist Yoshimasa Maruyama.

Japan's economy shrank for the first time in two years in the first quarter of the year amid weak consumption, official data showed Wednesday. "The global economy is performing well and a yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path".

Capital expenditure likely rose 0.4 percent, versus a 1 percent gain in the previous quarter, led by demand for factory automation and labor-saving technologies as companies tried to cope with a labor shortage.

External demand - or exports minus imports - added 0.1 percentage point to first-quarter GDP, as imports slowed more than exports.

Japan's government is preparing for its annual announcement of guidelines for economic and fiscal policy, but the government has been distracted by allegations of cronyism that have hurt Abe's approval ratings.

GDP marks first contraction in 9 quarters