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Japan’s economy contracted a less-than-expected 1.8% annual rate in the third quarter, with growth in private and government consumption limiting the decline.
On a quarterly basis, GDP contracted for the first time in six quarters in the three months to September, falling 0.4%, government data released on Monday showed.
However, the decline in growth was weaker than the Reuters poll’s estimate of an annual decline of 2.5% and a sequential decline of 0.6%.
Public demand grew by 2.2% on an annual basis, mainly supported by government consumption, while private demand fell by 1.8%, hurt by a decline in housing investment of more than 32%.
Exports contracted 4.5% on an annual basis in the third quarter and 1.2% compared to the second quarter, when they rose 2.3%.
The yen weakened slightly against the dollar during the Nikkei 225 fell by 0.29%. Japanese 10-year government bond yields rose 3 basis points to 1.73%.
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Japan’s exports had fallen for four straight months since May as U.S. tariffs hit supplies, although growth rebounded in September. Tokyo struck a trade deal with Washington in July that cut tariffs on its exports to the U.S. from 25% to 15% effective Aug. 7.
Domestic consumption helped slow the economic downturn, with government and private consumption increasing 0.5% and 0.1%, respectively, compared to the second quarter. One bright spot was public demand, which increased 0.5% quarter-on-quarter and contributed 0.1 percentage points to the growth of the Japanese economy.
Private demand proved to be the biggest drag on GDP this quarter. It fell 0.4% from the previous quarter, dragging the economy down 0.3 percentage points as residential investment fell 9.4%.
Harumi Taguchi, chief economist at S&P Global Market Intelligence, said he expects GDP growth to recover in the future, adding that the impact of the new housing laws is expected to fade. In 2024, Japan has mandated stricter energy saving standards for all new projects starting April 1 this year.
Taguchi said easing uncertainty over U.S. tariffs, as well as the agreement between Washington and Beijing to reduce mutual tariffs, appears to be positively impacting orders from Japan.
Weak quarterly growth is expected to support newly elected Japanese Prime Minister Sanae Takaichi’s plans to stimulate the economy.
The Japanese government has reportedly called for “bold and strategic” investments in crisis management and growth areas in its upcoming Takaichi government stimulus package.
Citing a draft, Reuters reported that “Japan’s government will promise to increase spending ‘without hesitation’ to support an economy that is on the verge of emerging from stagnation.” The government will also encourage investment in “key growth areas,” including artificial intelligence, semiconductors and shipbuilding.
Earlier this month, Nikkei reported that the package was worth over 10 trillion yen ($64.63 billion), including subsidies for electricity and gas bills and aid to small and medium-sized businesses to boost wages.
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