Japan GDP shrinks slightly less than initially expected in Q1

Investing.com-- Japan’s economy shrank slightly less than initially estimated in the first quarter, as a drop in capital spending appeared to be not as severe as expected, although weak private consumption still kept the economy in contraction. 

Gross domestic product shrank 1.8% year-on-year in the three months to March 31, a revised reading showed on Monday. An initial reading showed a decline of 2%, while GDP grew 0.4% in the prior quarter. 

GDP fell 0.5% quarter-on-quarter in the first quarter, the same as initially estimated, after rising 0.1% in the December quarter.

The slight improvement in the GDP came as the revised data showed capital expenditure shrank less than initially expected, down 0.4% quarter-on-quarter as compared to initial estimates for a 0.8% decline. 

This came as Japanese companies clocked strong earnings for the first quarter and ramped up spending.

But Japan’s economy still contracted in the quarter, with the decline being driven chiefly by weak private consumption, which fell 0.7% quarter-on-quarter- the same as initial estimates. 

Consumption, which is a key driver of the Japanese economy, came under increased pressure from sticky inflation and a depreciating yen over the past year. But consumption is also expected to potentially pick up in the coming months on higher wages.

Weakness in the Japanese economy limits just how much scope the Bank of Japan has to tighten monetary policy, after a historic rate hike earlier this year.

The BOJ is set to meet on Friday and is still expected to tighten policy further by scaling back its asset purchases. But analysts do not expect the bank to hike interest rates further in the near-term.