Japan's GDP Posts a Surprising High, but There's Reason to Worry

Daniel Fowler
May 22, 2019

Japan share market closed session modestly higher on Monday, 20 May 2019, as a risk-on mood continued after government data showed that Japan's economy grew at an annualized rate of 2.1% in the January-March quarter, supporting a moderate recovery of the Japanese economy. The results defied gloomy expectations by analysts who predicted a small decline at the start of this year, but some economists warned that signs of weakness remained beneath the positive headline figure.

The preliminary reading of inflation-adjusted gross domestic product, the total value of goods and services produced in the country, followed a revised expansion of 1.6 percent in October-December.

On quarter, the world's third-largest economy grew a real 0.5 percent, according to the Cabinet Office.

But a Cabinet Office official said the last-minute housing demand growth ahead of the October consumption tax hike did not have as much impact on the overall housing investment figure than at the time of the previous consumption tax increase in April 2014.

Healthy public investment and private residential investment helped boost growth during the quarter, according to the data.

However, imports slid 4.6% - the biggest drop in a decade - with exports falling by more than a 2.4%, leading to a net export contribution to GDP reported Reuters.

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The on-going deterioration of the domestic and global economic environment calls for a delay in the tax hike, some policymakers argue.

However, Economy Minister Toshimitsu Motegi put a courageous face on Monday, saying that there was no change to the government's plan to raise the sales tax to 10% from 8% in October. Economy Minister Toshimitsu Motegi said Monday there is no change in the government's plan to raise the tax.

"The Japanese economy has come to a standstill", said Tsuyoshi Ueno, senior economist at the NLI Research Institute.

Japan posted a robust rebound in its first-quarter GDP growth rate, as the lingering tensions in worldwide trade appear to paradoxically be benefitting the export-reliant economy.

"In the second quarter, GDP could be zero or slightly negative because exports will remain weak".

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