Japan’s Economy Grows After Government Eases COVID-19 Restrictions

People wearing face masks walk at Shibuya district in Tokyo on Jan. 19, 2022. Behrouz Mehri/AFP via Getty Images

Japan’s economy grew during the second quarter of 2022 and returned to its prepandemic level, although the recovery has been slower than in other major economies.

Gross domestic product (GDP) grew at a 2.2 percent annualized rate during the quarter, according to the Japanese Cabinet Office. The size of Japan’s economy, the third largest in the world, was 542.1 trillion yen ($4.1 trillion). First-quarter GDP initially was reported to have contracted but was later revised to 0.1 percent growth.

The second-quarter growth marks the third consecutive quarterly GDP increase.

In late March, the government ended its COVID-19 restrictions, helping to stimulate the economy. Consumer spending led the growth, with a 1.1 percent gain. Consumer spending alone accounts for more than 50 percent of the country’s economic output.

With COVID-19 rules being relaxed, people spent more money on clothes, restaurants, and hotels, boosting the economy. Capital expenditure was another major driver of second-quarter growth, rising 1.4 percent from the previous quarter.

According to some experts, rising COVID-19 cases pose a threat to Japan’s GDP growth in the coming months. Daily new infection numbers dropped during the last quarter of 2021. However, the number of cases began to increase in January and has been increasing since July.

“After a much brighter spring, we think the economy will slow again this quarter on the back of weaker consumer spending due to rising COVID-19 infections,” Takayuki Toji, an economist at SuMi Trust, told The Associated Press.

“Exports should be supported by the lifting of the urban blockade in China and capital investment should remain firm but slowing global growth due to monetary tightening in the U.S. and Europe will take its toll,” Toji said.

In July, the International Monetary Fund (IMF) downgraded Japan’s economic growth forecast for 2022 from April’s projection of 2.4 percent to 1.7 percent.

Inflation

Inflationary pressure is another challenge facing the Japanese economy. Though inflation is relatively moderate, consumption is at risk of cooling down as prices rise faster than wages.

When adjusted for inflation, paychecks fell for three months straight from April through June, amounting to an overall loss of 0.9 percent compared to the first quarter, and a much steeper quarter-to-quarter drop than the 0.1 percent slump between the fourth quarter of 2021 and the first quarter of 2022.

“Inflation can cool consumption, although oil prices may stabilize with the global economy slowing down,” Takeshi Minami from the Norinchukin Research Institute told Bloomberg. “As downside risks mount in the world economy, there’s a risk that Japan’s economy could contract at some stage toward the end of the year.”

Prime Minister Fumio Kishida hopes to contain inflation by September. He said he wants wage gains to be sustained, the cap on imported wheat prices to continue, and increased funding for local governments, Bloomberg reported.

Reuters contributed to this report.