“Although economic growth accelerated in the first quarter of the year, this was entirely driven by a sharp contraction in imports of goods and services, while exports and domestic demand both deteriorated from Q4 2018. Turning to Q2, consumer confidence fell to its lowest point in over three years in April, which does not bode well for household spending going forward. In further bad news, weak global demand continued to weigh on exports in April, while rising trade tensions between China and the United States cloud the outlook for Japan’s external sector as well as prospects for manufacturing activity. Meanwhile, Japan and the United States are also still thrashing out a deal in attempts to avert a trade war. Particularly, the U.S. is trying to gain greater access for its farm exports to Japan and using tariffs on Japanese car imports as a means to leverage pressure.” (Focus Economics, May 28,2019)

Japan’s economy has been cooling since the beginning of 2018, following a strong expansion in 2017.

All major sources of aggregate demand slowed last year, including consumer spending, investment, and exports. And as the chart below indicates, real GDP in Japan declined in both the first and third quarters of 2018.

Nonetheless, real GDP rebounded strongly at a 2.1% annual rate in the first quarter of 2019 following only 1.6% growth in the fourth quarter.

The same set of external headwinds that slowed other advanced economies has retarded Japan’s economic growth rate. Trade concerns continue to persist, and low inflation is still an issue for the central bank.

There is little doubt that weak global demand and rising trade protectionism will deliver only slow growth this year. October’s sales tax increase will also likely reduce consumer demand and should have most of its negative impact late this year and in 2020.

On the trade dispute front, Japan is concerned about whether the US will impose tariffs on Japan’s all-important automotive industry. 

The economy is expected to be quite weak this year, growing only about 1% and then to slow further to 0.7% in 2020. 

Japan’s Economy Has Been Slowing Since Early 2018; Inflation Is Still Quite Weak 

(Click on image to enlarge)

Japan’s Economy Has Been Slowing Since Early 2018; Inflation Is Still Quite Weak  

(Click on image to enlarge)