Where’s the positive news? Japan’s third-quarter contraction, inflation dim post-pandemic optimism

Political analysts warn that Japan is paying the price for years of politicians failing to implement much-needed economic reforms

The government attributed the 1.2 per cent year-on-year decline in GDP for July-September to more imports of costly energy especially oil and coal

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People look at fruit and vegetables outside a supermarket along a covered shopping street in Tokyo. Political analysts warn that Japan is paying the price for a succession of administrations that has failed to implement effective reforms in an economy in dire need of root-and-branch changes. Photo: AFP

Published: 10:30am, 17 Nov 2022

The Japanese economy’s unexpected contraction in the third quarter – the first time in a year – has made unpleasant reading for Prime Minister Fumio Kishida’s government even as analysts suggest the performance is a “natural part of the cycle”.

The world’s third-largest economy shrank 1.2 per cent on the year in the July to September quarter, data showed on Tuesday.

While economists have suggested the result might be a blip, political analysts are less upbeat, warning that the country is paying the price for a succession of administrations that have neglected structural reforms to the economy.

Data released by the Cabinet Office showed seasonally adjusted real gross domestic product in the world’s third-largest economy contracted 0.3 per cent in the July-September quarter.

That figure translates to a 1.2 per cent contraction on an annualised basis – the first decline in four quarters – and was significantly weaker than the 1.2 per cent increase reported in April-June.

The government attributed the contraction to a sharp 5.2 per cent increase in imports, with exports only rising 1.9 per cent and failing to counteract the negative growth. More costly energy imports, primarily of oil and coal, were the largest contributing factor.

Domestic consumption rose 0.3 per cent, also insufficient to counteract the downside factors, and remained short of the 1.2 per cent increase reported in the previous quarter. Restaurants and bars saw stronger performance than the summer months, but there are concerns the latest resurgence of the coronavirus will affect the next quarter’s figures.

Shoppers walk into a store at a shopping centre in Tokyo. There are concerns that the latest resurgence of the coronavirus will affect the next quarter’s figures. Health authorities reported 105,188 new cases on November 15, with Tokyo and Hokkaido the worst-affected regions. Photo: AP