Japan out of recession despite export slump

Japan emerged from a technical recession on a post-Covid recovery in household spending and tourism, pushing stocks in Asia’s most advanced economy to a 33-year high.

However, economists warned that the strength of Japan’s recovery was modest with exports and manufacturing weakening, underscoring risks if the global economy slows further.

Gross domestic product grew at an annual rate of 1.6 percent in the January to March quarter, while economists had expected a 0.7 percent increase. Japan was in a technical recession after falling 1 percent and 0.1 percent in the third and fourth quarters of 2022, respectively.

The latest data translated into a quarterly growth rate of 0.4 percent, according to preliminary data released by the Cabinet Office on Wednesday.

Citing improving consumer confidence, strong business spending and rising wages, Economy Minister Shigeyuki Goto said, “While we need to focus on downside risks to the global economy, we expect the economy to continue a modest recovery.” ” companies.

Following the GDP release, the broad Topix stock index rose 0.4 percent, while the Nikkei index added 0.8 percent, both nearing their highest since Japan’s market bubble burst in late 1989. Went.

Market gains on Wednesday continued a rally in Tokyo shares, which have driven the Topix index up more than 14 percent since the start of the year. The growth has been driven by interest from foreign investors in the prospects for improving corporate governance and by managements feeling obligated to work harder to prop up their share prices.

The rally has also been sustained by optimism that Japan has passed an important inflection point that is set off on expectations of rising wages and higher consumer spending.

Household spending, which accounts for more than half of Japan’s gross domestic product, rose 0.6 percent from the previous quarter, while business investment also rose 0.9 percent more than expected.

The recovery in consumption was driven by the lifting of pandemic-related restrictions and the return of foreign tourists as the Japanese government recently accorded Covid-19 the same status as seasonal flu.

But exports of goods and services fell 4.2 percent, marking the first decline in six quarters due to a slump in the global semiconductor market.

“Because of the drop in exports, these figures are not enough to say that the economic situation is livable,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

They said the data were likely to offer some support to the Bank of Japan as its new governor, Kazuo Ueda, faces the challenge of unleashing massive easing measures if consumer prices continue to rise at their fastest pace in four decades. .