Tourism revives Japan’s economy… growth exceeds expectations by 1.6%

Official data published on Wednesday showed that the Japanese gross domestic product rose in the first quarter of 2023 by 0.4 percent on a quarterly basis, in growth that exceeded expectations and was partly achieved by the recovery of the tourism sector after the lifting of restrictions related to the Covid pandemic.

And after the Japanese GDP growth rate in the last three months of last year was zero, experts expected that the economy would grow in the first quarter by only 0.1 percent, but the result exceeded 3 times that number.

Government data also showed, on Wednesday, that the world’s third-largest economy grew by 1.6 percent year-on-year in the January-March period, far exceeding expectations for a 0.7 percent growth. recording the first growth in three quarters on a quarterly basis.

But mounting signs of slowing growth in the US, Europe and China are clouding the outlook for Japan’s export-dependent economy, adding to uncertainty about how quickly the Bank of Japan will phase out its massive stimulus programme.

“Consumption will continue to support growth as the removal of coronavirus restrictions boosts spending on tourism and services,” said Yoshiki Shinki, chief economist at Dai-ichi Research Institute.

“However, the economic recovery will be moderate as weak external demand will affect exports. It will be a tug of war between strong domestic demand and stagnant exports,” he said.

Private domestic consumption, which makes up more than half of the economy, grew 0.6 percent in the January-March period from the previous quarter, as the country’s reopening from the pandemic boosted spending on services. This is higher than expectations for an increase of 0.4 percent.

Capital expenditure data also came out positive, surprisingly rising by 0.9%, which had been expected to decline by 0.4%.

Japanese Economy Minister Shigeyuki Goto said that Japan’s nominal GDP reached a record high of 570.1 trillion yen (about $4.22 trillion), supported in part by rising prices.

However, Goto said caution is required. “We must pay careful attention to the global economy and the implications on financial markets and the rise in interest rates on the real economy,” he said.

Strong domestic demand offset weak exports, which fell 4.2 percent in the January-March period, marking the first drop in six quarters.

A drop in external demand, or net exports, pared the first-quarter gains by 0.3 percentage points, which was offset by a 0.7 percentage point increase in domestic demand.

Analysts say rising fuel and food costs, which have pushed Japanese consumer inflation above the central bank’s 2 percent target, could also affect consumption unless wage increases continue.

Inflation-adjusted wages fell 2.3 percent in the January-March period from a year earlier, more than the 1.8 percent decline in the previous quarter, highlighting the growing pain families are experiencing from the rising cost of living.

And the Tokyo Stock Exchange interacted positively with the GDP data, as the Nikkei index rose in early trading by 0.41 percent, or 123.44 points, to reach 29,966.43 points, while the broader Topix index gained 0.11 percent, or 2.32 points, to reach 2129.50 points.