Japan Economy Expected to Rebound

Japan’s longest run of economic expansion since the 1980s has ended, even as economists expect a rebound in the current quarter, with the outlook for the rest of the year tempered by global uncertainties.

Revised data confirmed that the economy shrank by an annualized 0.6% in the quarter ended in March, Japan’s Cabinet Office reported. The contraction put an end to eight consecutive quarters of growth, the longest sequence of growth since a 12-quarter run between 1986 and 1989, Nikkei reported.

This puts Japan one quarter away from technically being in recession, suggesting a failure of Prime Minister Shinzo Abe’s reflationary policy, known as Abenomics, and of the Bank of Japan’s ultra-easy monetary policy.

But the majority of economists do not see the country falling into a recession, with gross domestic product for the quarter ending June expected to see a rebound.

Three areas of weakness were behind the contraction in the first quarter: consumer consumption, external demand and housing investment. But monthly numbers since April show that consumer consumption has already picked up, as climate-related factors, such as higher vegetable prices due to a bad crop, faded. External demand has also rebounded, as trade war fears eased.

“The economic contraction was temporary,” said Takashi Miwa, chief economist at Nomura Securities.

Yet, economists were unclear whether the rebounding momentum in external demand would continue beyond the second quarter, because a cyclically slowing global economy might put a hard brake on growth.