Japan's economy rebounds as consumers, companies spend more

Japan's economy rebounds as consumers, companies spend more

Japan bounced back to growth following its first contraction in two years, official figures showed Friday, with gross domestic product (GDP) expanding by 0.5 percent quarter-on-quarter in the April-June period, compared with a 0.2-percent decline between January and March.

The rebound in consumer spending is a welcome development for the Bank of Japan but unlikely to be enough to change its stance that interest rates need to stay low for a very long time to end the country's deflationary mindset.

"Global trade conflict remains a risk factor... focus is how much the USA demands Japan over trade issues".

The preliminary data released by the Cabinet Office revealed that Japan's economy had recovered from a 0.9-percent annualized contraction in the previous quarter and had dodged a slip into recession, owing to a pick-up in private consumption and capital expenditure.

Business investment jumped 1.3 percent following a 0.5 percent gain in the previous quarter, thanks partly to booming construction ahead of the Tokyo Olympics in 2020. The country's big automakers, including Toyota, Nissan and Honda, are anxious about US President Donald Trump's threats to impose tariffs on auto imports.

"The economy is running into capacity constraints. It's a question of how much", he said in a note to investors.

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Many industries face labour shortages due to a rapidly ageing population.

External demand, or exports minus imports, subtracted 0.1 percentage point from growth, missing expectations for a 0.1 percentage point contribution.

Exports are expected to have risen 6.3 percent in July from a year earlier, the poll of 16 economists showed, after rising 6.7 percent in June.

The United States has pressured Japan for a bi-lateral free-trade agreement as a way to lower the USA trade deficit.

The two countries failed to reach any consensus in talks on Thursday after Japanese Economy Minister Toshimitsu Motegi insisted on Tokyo's position that it preferred multilateral free trade agreements over bilateral ones.

"Concerns over the potential auto tariffs can't be ignored", said Japan Research Institute economist Yusuke Shimoda.

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