A Japanese government report released on Tuesday stated that the real gross domestic product increased by 2.1% annually in the first quarter. The reading showed an acceleration from the previous quarter’s downwardly revised growth pace of 0.8% and exceeded economists’ prediction for a 1.7% expansion, Bloomberg reported.
According to the survey, the economy took off between January and March, before the full effects of the Iranian war began to manifest, the report added.
As the central bank attempts to continue normalising policy and handle rising inflation risks, the strong expansion may allow policymakers to contend that the economy is robust enough to tolerate higher borrowing costs.
The yen weakened slightly versus the dollar following the release, despite the optimistic growth figures. The likelihood that the central bank would raise rates in June is roughly 77%, according to overnight swaps, which were essentially unchanged.
The outcome occurs at a particularly delicate moment for Prime Minister Sanae Takaichi, who is trying to maintain the support of investors and the general public.
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Although the public having to deal with inflation will mainly support her need for an additional budget to pay for emergency relief measures and renewed energy subsidies, investors may become more sceptical of her fiscal plans as a result of her reversal on the necessity for additional money for the initiatives.
Over 50% of Japan’s GDP comes from private consumption, which grew by 0.3% on a non-annualised basis, surpassing a prediction of 0.1%. Government utility subsidies and salary growth that eventually began to outstrip inflation probably helped with that. However, since the start of the war, consumer confidence has been declining.
Additionally, net exports helped the economy more than anticipated. According to trade data from March, Japan’s exports increased more quickly as Chinese demand increased.
Business investment growth decreased to a 0.3% increase from the previous quarter. Ordinary profits increased for the fifth straight quarter, according to the Finance Ministry’s March company survey. Companies’ enthusiasm for investment was sustained by the global growth in artificial intelligence as well as the growing need for digitalisation in the face of a labour shortage.
