Japan confronts economic downturn amid weak consumption, external demand


(MENAFN) Japan's Economy
faced a significant contraction in the first quarter, marked by weak consumption and external demand, presenting a fresh challenge for policymakers as the central bank
considers raising interest rates from their near-zero levels. Preliminary gross domestic product (GDP) data released on Thursday indicated that the Economy
shrank by 2 percent on an annual basis from the previous quarter, surpassing the 1.5 percent decline predicted by experts in a Reuters poll. The quarterly data revealed a contraction of 0.5 percent, which was also more severe than the anticipated 0.4 percent decline.

A key factor contributing to this downturn was the decline in private consumption, which accounts for more than half of Japan's economy. Private consumption dropped by 0.7 percent, exceeding the expected decline of 0.2 percent, marking the fourth consecutive quarter of decline and the longest streak since 2009. Additionally, external demand, defined as exports minus imports, led to a 0.3 percentage point decrease in the first-quarter GDP estimates.

In March, the Bank of Japan raised interest rates for the first time since 2007, signaling a historic shift away from negative interest rates. However, given the fragile state of the economy, the central bank is expected to proceed cautiously in moving away from its ultra-loose financial policies. This economic contraction highlights the complexities facing Japanese policymakers as they navigate the delicate balance between stimulating growth and normalizing monetary policy.

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