Japan’s Economy Grew in Second Quarter as Consumer Spending Increased

People make their way through Ameyoko shopping district in Tokyo on May 20, 2022. Kim Kyung-Hoon/Reuters

The Japanese economy grew at an annual rate of 3.5 percent in its second quarter, up from the initial estimate of 2.2 percent, as consumer and business spending rebounded with the easing of COVID-19 restrictions.

The figure is above the median market projection of 2.9 percent growth. Japan’s gross domestic product (GDP) increased by 0.9 percent quarterly, up from 0.5 percent in the previous quarter, Kyodo News reported.

The economy was boosted by increased consumer spending, with capital spending growing 2 percent and private consumption increasing 1.2 percent, both of which were revised from their initial estimates of 1.4 percent and 1.1 percent growth, respectively.

Japan’s exports increased by 0.9 percent and imports by 0.6 percent. Domestic demand as a whole contributed 0.8 of a percentage point to revised GDP growth, while net exports added 0.1 of a percentage point.

The country has lifted most of its COVID-19 measures and resumed accepting foreign tourists from countries classified as having the lowest risk of COVID-19 since August, but only for package tours.

Japan has lagged behind other major economies in shaking off the effects of the pandemic due to a slow consumption recovery, blamed partly on aging consumers who are reluctant to spend on services like dining out and travel due to the COVID-19 outbreak.

Central Bank Policy

Rising fuel and commodity costs have pushed Japan’s inflation above the 2 percent target, but the Bank of Japan (BOJ) maintains its ultra-loose monetary policy to support economic recovery.

Japan’s loose monetary policy stands in stark contrast to a global wave of interest rate hikes, which has led to a sharp selloff in the yen, complicating the outlook for policymakers.

Earlier in July, BOJ Governor Haruhiko Kuroda brushed aside the chance of near-term policy tightening, saying he had “absolutely no plan” to raise interest rates or hike an implicit 0.25 percent cap set for the bank’s 10-year bond yield target.

“The economy is in the midst of recovering from the pandemic. Japan’s worsening terms of trade are also leading to an outflow of income,” Kuroda told reporters.

“As such, we must continue with our easy policy to ensure rising corporate profits lead to moderate wage and price growth,” he added.

The slide in the Japanese currency, which has lost about 20 percent against the U.S. dollar over the past six months, is pushing up the cost of imports and raising the prospect that households will be forced to pay more for goods.

Reuters contributed to this report.