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2024 Q1 Economic Downturn in Japan Predicted Due to Decline in Consumption, Capital Expenditures, and External Demand

According to recent reports and economic forecasts, Japan’s economy is expected to experience a contraction of 1.5% annually during the first quarter of 2024, following a marginal growth rate of 0.4% during the final quarter of 2023. This downturn can be attributed to a general slump in major drivers of economic growth, including private consumption, capital expenditures, and external demand. Private consumption, which constitutes more than half of the national economy, is projected to decrease by 0.2% during the January-March quarter as households become increasingly frugal due to mounting living expenses, potentially worsened by the weakening yen. The earthquakes that hit the Noto peninsula early this year have also adversely affected production and consumption. Moreover, a scandal involving Toyota’s compact car unit Daihatsu has resulted in the suspension of both manufacturing and shipping operations. Capital expenditures are likewise estimated to fall by 0.7% quarter-on-quarter, as firms remain hesitant to spend their substantial earnings on machinery and equipment, particularly automated technologies that can address labor shortages. External demand, represented by net exports, is projected to subtract 0.3 percentage points from GDP growth. Inflationary pressures persist, with the corporate goods price index (CGPI) predicted to increase by 0.8% year-over-year in April, consistent with the March figure. During the same month, the CGPI is anticipated to rise by 0.3% month-over-month, quickening marginally from the 0.2% rise recorded in March. These developments are likely to impede the Bank of Japan’s attempts to raise interest rates. Data on external demand, private consumption, and capital expenditures will be published on May 16, while the CGPI statistics for April will be disclosed on May 14.

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