The Japanese economy decreased for the first time in one year, contracting 0.2% in the March quarter, exports, exports have decreased sharply, showed government preliminary data on Friday.
The raw data of the domestic product was poorer compared to the contraction of 0.1% expected by the economists interviewed by Reuters.
On an annualized basis, Japan GDP contracted 0.7% in the first quarter, also more than the 0.2% drop in the Reuters survey.
Exports dropped by 0.6% in quarter, which allowed 0.8 percentage points on GDP as an interitudes caused by the trade policies of US President Donald Trump affected the Japanese economy heavy with exports. Interior demand, however, was a light point, increasing by 0.6% in the same quarter and adding 0.7 percentage point to GDP.
On an annual sliding basis, however, Japan GDP increased by 1.7%, the largest expansion since the first quarter of 2023 and a stronger performance compared to the 1.3% growth observed in the fourth quarter.
Japan GDP data occurs at a time when the country is enclosed in trade negotiations with the United States, with initial talks between the two parties so far, not giving a conclusive affair.
Jesper Koll, Expert Director of the Financial Service Company Monex Group, told CNBC that if Japanese companies are “very strong at home”, reflecting the increase in domestic demand, exports can continue to see weakness.
He noted that even if the weak yen had given a competitive advantage for Japan exports, the advantage was “controlled” by exports of China machines and tools, which have better sales compared to Japan and are of good quality.
On Friday, Ryosei Akazawa, the best commercial negotiator in Japan, would have said that there was no significant impact on American prices on the GDP in the first quarter of Japan.
However, he warned against risks downwards for the economy of American trade policy and that the government “would take all necessary measures” to support affected companies.
Although uses for jobs and wages probably underpin moderate economic recovery, Akazawa has said that the risks remained in consumer feeling and the consumption of sustained price increases.
Krishna Bhimavarapu, an economist in Asia-Pacific at State Street Global Advisors, said that if the Japanese GDP growth figure was lower than its estimate, domestic demand was “very good”.
Bhimavarapu is expecting a “reasonable agreement with the United States” in the coming months, which will reduce the pricing impact.
“All this will mean that the Bank of Japan would comfortably sit on the touch until the certainty emerges as we expect a single hike this year, perhaps in the fourth quarter,” he added.
The Bank of Japan held rate at 0.5% on May 1 for a second consecutive meeting.
The Boj had also recently warned On May 13, that the country’s economy should moderate in the future, saying that it would be due to the effects of trade policies in the world.
“Negative demand shocks are expected, in particular the impact of increased uncertainties on the fixed investment of companies and household consumption, a decrease in the volume of exports to the United States and a deterioration in the profitability of exports in Japan,” BOJ wrote.
The American tariff policy will exert downward pressure on economic activity and prices in Japan, noted the Central Bank.
Despite these growth problems, the central bank seems to continue to increase its policy rate, with Some members of the Boj board of directors say The bank’s inflation objective of 2% is likely to be achieved, and it would continue to increase the policy rate if its prospects for economic activity and price are obtained.
Inflation in Japan had exceeded the target of 2% of the BO for three consecutive years, which will arrive more recently at 3.6% in April.
However, other members of the board of directors have also warned that the prospects are uncertain and that the bank should “examine the possibility of deviations both up and down of its prospects and lead monetary policy, if necessary”.
