Japan’s economy stages modest bounce from COVID jolt, global outlook darkens

By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) -Japan’s financial system rebounded at a slower-than-expected tempo within the second quarter from a COVID-induced droop, information confirmed on Monday, highlighting uncertainty on whether or not consumption will develop sufficient to bolster a much-delayed, fragile restoration.

A revival in Japan, like many different economies, has been hobbled by the Ukraine warfare and surging costs of commodities whilst rising consumption propped up progress in April-June.

“Consumption and capital expenditure will proceed to drive progress in July-September. However momentum is probably not that robust as rising inflation is cooling family spending,” mentioned Atsushi Takeda, chief economist at Itochu Financial Analysis Institute.

“Whereas home demand might proceed to increase, falling exports might put a brake on Japan’s restoration,” he mentioned.

Certainly, Japan’s outlook has been clouded by a resurgence in COVID infections, slowing world progress, provide constraints and rising uncooked materials costs which are boosting households’ dwelling prices.

The world’s third-largest financial system expanded an annualised 2.2% in April-June, authorities information confirmed, marking the third straight quarter of improve however falling wanting median market forecasts for a 2.5% achieve.

It adopted a revised 0.1% rise in gross home product (GDP) in January-March, when surging COVID circumstances damage spending.

The expansion was pushed largely by a 1.1% achieve in personal consumption, as eating places and motels noticed demand get well because of the lifting of pandemic-related curbs.

Capital expenditure, one other key driver of April-June progress, elevated 1.4% from the earlier quarter, exceeding a median market forecast for a 0.9% enlargement, the information confirmed.

However the rise in second quarter consumption was smaller than market forecasts for a 1.3% improve, casting doubt on whether or not the rebound in family spending can have legs.

EXTERNAL RISKS

Some analysts say a resurgence in COVID infections, and up to date worth hikes for a variety of every day items, might discourage households from splurging on leisure and dine-outs.

Wage earners’ remuneration throughout April-June, adjusted by inflation, fell 0.9% from the earlier quarter, a deeper drop than a 0.1% fall in January-March in an indication rising dwelling prices had been already hurting family earnings.

Heightening fears of a worldwide slowdown, pushed partially by a wave of financial tightening by main central banks, have additionally darkened prospects for a sustained restoration in Japan’s financial system.

Whereas home demand added 0.5% level to April-June GDP, exterior demand neither added to, nor shaved off from progress in an indication of waning help from the once-strong export sector.

“Wanting forward, there’s draw back dangers to home demand as a result of a renewed spike in COVID circumstances. Exterior dangers are additionally skewed to the draw back on heightening recession fears in the US and Europe,” mentioned Toru Suehiro, an economist at Daiwa Securities.

Eager to cushion the financial blow from rising dwelling prices, Prime Minister Fumio Kishida on Monday instructed his ministers to attract up extra steps to reasonable the tempo of will increase in gasoline and meals costs.

Japan has lagged different main economies in absolutely recovering from the pandemic’s hit as a result of weak consumption, blamed partially on curbs on exercise that lasted till March.

That has turned the Financial institution of Japan (BOJ) into an outlier within the world financial tightening part sweeping throughout many economies amid surging inflation.

Policymakers hope pent-up demand will underpin consumption till wages rise sufficient to make up for growing dwelling prices. However there’s uncertainty on whether or not corporations will hike salaries amid heightening dangers of slowing world demand, analysts say.

The BOJ has careworn its resolve to take care of ultra-loose financial coverage whilst inflation exceeded its 2% goal for 3 straight months in June, to make sure the financial system makes a sustained restoration pushed by strong consumption and wage progress.

(Reporting by Leika Kihara and Tetsushi Kajimoto; Further reporting by Kantaro KomiyaEditing by Shri Navaratnam)