Strong consumer spending boosts Japan economy, but GDP misses forecasts

A slowdown in the spread of virus cases and a sharp rise in consumer spending has boosted Japan’s economy, new figures published today showed.

Output in the world’s third biggest economy jumped 2.2 per cent in the three months to June, up from a small 0.1 per cent rise in the first quarter of this year.

Despite the bump, growth undershot analysts’ expectations of a 2.6 per cent rise.

Households consumption climbed 4.6 per cent over the last quarter, primarily driven by the Covid omicron wave in Japan waning and restrictions on daily life being pulled back.

“Japanese second quarter GDP recovered from an essentially flat (after revisions) first quarter, as the economy benefitted from a post-Omicron rebound,” Craig Botham, chief China+ economist at Pantheon Macroeconomics, said.

But, Botham warned a future surge in Covid-19 cases and a reduction in demand for Japanese imports among other rich nations caused by surging inflation could tamp down on growth going forward.

Japan has struggled with weak domestic demand for decades, partly due to its ageing society placing a heavy burden on its workforce.

The G7 member’s central bank is the only one among the group that has not lifted interest rates. 

Inflation is much lower in Japan compared to the UK, US and eurozone, but is above the Bank of Japan’s target.