Japan’s economy contracts for first time in six quarters on tariff hit
[TOKYO] Japan’s economy shrank almost 2 per cent in the three months to September, as a drop in exports in the face of US tariffs resulted in the first contraction in six quarters, government data showed on Monday (Nov 17).
Shipments from automakers in particular plummeted, following a period of hiking exports before tariffs came into effect.
Still, as the overall contraction was not as acute as expected, it likely represents a temporary setback rather than the start of a recession, noted economists.
“The contraction is largely due to one-time factors such as housing investment” affected by regulatory change, said economist Kazutaka Maeda at Meiji Yasuda Research Institute.
“Exports also reacted,” he said. “Overall, the economy lacks strong underlying momentum, but the trend still points to a gradual recovery over the next year or two.”
Economists generally viewed this quarter’s gross domestic product figures as having a marginal impact on Bank of Japan (BOJ) thinking when next deciding interest rates versus factors such as inflation. However, an economist close to Prime Minister Sanae Takaichi gave the data more weight.
Given the contraction, it “would be misguided for the BOJ to decide to raise interest rates” in December, said Credit Agricole chief Japan economist Takuji Aida, who is on Takaichi’s flagship panel tasked with laying out the country’s growth strategy, in a report to clients.
Automakers combat tariffs with price cuts
GDP contracted 1.8 per cent in July to September. That compared with revised growth of 2.3 per cent in the previous three-month period, as well as the 2.5 per cent contraction that economists on average estimated in a Reuters poll.
The reading also translated into a quarterly contraction of 0.4 per cent versus the median estimate of 0.6 per cent.
Exports constituted the main drag as the impact of higher US tariffs intensified. Automakers saw shipment volume plunge, reversing earlier front-loaded exports ahead of tariff hikes, though they mostly absorbed tariffs by cutting prices.
Net external demand, or exports minus imports, knocked 0.2 of a percentage point off growth, versus a 0.2 point positive contribution in April to June.
The US and Japan formalised an agreement in September that implemented a baseline 15 per cent tariff on nearly all Japanese imports, versus an initial 27.5 per cent on autos and 25 per cent for most other goods.
Private consumption matches estimates
Housing investment also weighed on growth as tighter energy-efficiency regulation introduced in April slowed commitments.
Private consumption, which accounts for more than half of economic output, grew 0.1 per cent, matching a market estimate. That was cooler than the 0.4 per cent of the second quarter, indicating that high food costs increased reluctance to spend.
Capital spending, another key driver of private demand-led growth, rose 1 per cent in the third quarter, far exceeding a market estimate of 0.3 per cent.
“Private consumption rose for the sixth straight quarter, and capital expenditure increased for the fourth consecutive quarter,” said Minoru Kiuchi, the economic revitalisation minister, in a statement.
“This reinforces our view that the economy remains on a moderate recovery path,” he added.
Private-sector estimates reflect expectation for growth to rebound in October to December. A poll of 37 economists by the Japan Center for Economic Research projected a 0.6 per cent expansion.
The weak GDP data comes as Takaichi’s government compiles a stimulus package to help households manage rising living costs.
Advisers to Takaichi have cited a likely sharp GDP contraction as a reason for aggressive stimulus measures.
Finance Minister Satsuki Katayama told reporters on Sunday that the proposed economic stimulus would exceed 17 trillion yen (S$143.1 billion), media reported.
“From late this winter through around spring, there will be measures that improve households’ income conditions in real terms,” noted Nomura Securities economist Uichiro Nozaki. “Therefore, in terms of underpinning consumption in the first half of next year, this is a positive factor.” REUTERS
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