Japan GDP Growth Likely Increased In Q1 On Robust Services Consumption

As spending in the services sector offset weak corporate activity, Japan's economy likely expanded at the quickest rate in three quarters between January and March, according to sources.

Due in part to the services sector's catch-up recovery after Japan's delayed reopening from the COVID-19 outbreak and the central bank's continued ultra-loose monetary policy, the country has so far avoided suffering significant effects from the worsening global economic conditions.

As per to the median of 17 expert forecasts, the first three months of 2023 saw the third-largest economy in the world grow by an annualised 0.7%. This expansion would follow growth of just 0.1% in October–December and would be the fastest since the 4.7% of April–June 2022.

A national travel subsidy and loosened border controls (for international visitors) helped boost service demand, according to senior economist Saisuke Sakai of Mizuho Research and Technologies, "while accelerating inflation and a slowing global economy have brought downward pressure."

According to experts surveyed by Reuters, private consumption, which comprises the majority of Japan's gross domestic product (GDP), likely increased by 0.4% in January-March as opposed to just 0.3% in the prior quarter. A flurry of local and foreign tourists helped to maintain overall consumption growth even while spending on products has slowed due to a four-decade high inflation rate.

In contrast, according to the survey, capital spending probably decreased for a second month, by 0.4%. Depressed external demand also likely wiped 0.2 per centage point from overall GDP growth. The COVID-19 outbreak in China earlier this year and the tightening of the global monetary system have reduced demand for Japanese exports abroad and made manufacturers hesitant to increase investment, according to analysts.

Future services consumption is expected to increase, but slower global growth would limit Japan's ability to recover, according to Mizuho's Sakai, who also noted that the financial instability involving Western banks creates additional downside risk.

On May 17 at 8:50 am (23:50 GMT on May 16), the government will issue the first round of GDP figures for the months of January through March.