Japan’s economy shrinks in third quarter on import costs

Japan’s economy shrank in the three months to September, official data showed Tuesday, due to high import costs and weak private consumption despite the end of Covid-19 restrictions.

It follows three consecutive quarters of growth after an initial negative reading in the first quarter was revised upwards.

Corporate investment was up in the period but private residential investment declined, while an increase in import costs overwhelmed an increase in exports, the cabinet office said.

The world’s third-largest economy contracted 0.3 percent quarter-on-quarter, missing market expectations of 0.3 percent growth, the data showed.

Analysts had predicted a pick-up in consumption but acknowledged ahead of the data release that Japan faced headwinds from its trade situation, with sky-high prices for commodities such as oil pushing up import costs.

A slower global economy, which is “is likely to be dragged down by tightening in monetary policy, zero-Covid policy in China and geopolitical uncertainties,” is also a negative factor for Japan, UBS economists Masamichi Adachi and Go Kurihara said.

“On top of these factors, the secular drag from a shrinking and aging population and low medium-to-long-term growth expectations cannot be ignored,” they added.

Last month, Japanese Prime Minister Fumio Kishida announced a $260 billion stimulus package to cushion the economy from the impact of inflation and the weak yen.

The Japanese currency has tumbled from about 115 against the dollar before Russia’s invasion of Ukraine to around 140 on Tuesday, although it has retreated from recent multi-decade lows of less than 151 yen.