Japan economy shrinks for first time in 2 years

Japan’s economy expected to show sluggish growth in first quarter

Japan's economy contracted more than expected at the start of this year, suggesting growth has peaked after the best run of expansion in decades, unwelcome news for a government struggling to get traction for its reflationary policies. Uncertainty looms over the potential trade frictions set off by the recent moves announced by President Donald Trump.

"It is certain that the heavy snowfall in January and February and rises in fresh vegetable prices reduced disposable income but still (private consumption) is weak", said SMBC Nikko Securities chief market economist Yoshimasa Maruyama.

Domestic demand lopped 0.2 percentage points (ppts) of quarterly growth, driven lower by declines in housing investment and private business inventories.

However, a breakdown of the data shows export growth is losing momentum, expanding just 0.6 percent in the first quarter after growth of 2.2 percent in the fourth quarter.

Consumers will keep purse strings tight "unless the pace of wage increases shows a clear acceleration", he said in a commentary released ahead of the data release.

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Economists say while the contraction is temporary, the rebound will not be almost as strong as previous quarters. After eight consecutive quarters of positive economic growth, the longest such stretch in 28 years, Japan's economy is back to shrinking.

Nominal GDP was down 0.4% on quarter, missing expectations for a gain of 0.1% following the 0.1% gain three months earlier.

According to the WSJ, Capital Economics senior Japan economist Marcel Thieliant forecasts annual expansion to slow from 1.7% in 2017 to 1.2% this year. It ended the longest straight period of uninterrupted growth since the late 1980s.

"There are worries about some emerging economy markets but the global economy as a whole is likely to continue its recovery for some more time".

But consumer spending has remained stubbornly lacklustre, with companies staying stingy on wage hikes despite healthy profits.

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