Japan's economy contracts as energy prices soar

Japan's economy shrank at a worse than expected annual rate of 1% in the first quarter, as rising prices and COVID-19 restrictions sapped spending and investment, according to data released Wednesday.

Japan's real gross domestic product, or GDP, the sum of the value of a nation's products and services, contracted 0.2% in January-March compared to the previous quarter, the Cabinet Office said.

The world's third-largest economy managed modest growth in the final quarter of last year, but the economy sank the quarter before that.


Russia's war in Ukraine has pushed already high energy prices still higher, a big minus for resource-poor Japan. The Japanese yen has weakened, trading at about 130 yen to the dollar, making imports relatively more expensive.

Japan never had a lockdown but has periodically put restrictions on businesses, mostly asking restaurants and bars to close early to curb the spread of the coronavirus pandemic. The last such restrictions ended in March.

Some medical experts say the nation has seen a surge in COVID-19 cases since then, because of the more contagious omicron variant. Japan has recorded about 30,000 COVID-19-related deaths so far.

The reintroduction of restrictions to curb the spread of the infections and the impact of inflation putting a squeeze on household spending power are pulling growth downward, analysts say.

But some expect an economic rebound in months ahead.

"After a dismal start to the year, we think the economy will bounce back this quarter thanks to a recovery in consumer spending, particularly in services, following the full lifting of COVID-19 restrictions in Japan," said Takayuki Toji, an economist at SuMi TRUST.