Japan has emerged from a technical recession, supported by a post-coronavirus recovery in household spending and tourism, pushing stocks in Asia’s most advanced economy to fresh 33-year highs.
However, economists have warned that Japan’s recovery will be muted due to weakness in exports and manufacturing, underscoring the risks if the global economy slows further.
Gross domestic product grew at a 1.6% annualized rate in the January-March quarter, compared with economists’ expectations for a 0.7% increase. Japan has been in a technical recession after declining by 1% in the third quarter of 2022 and 0.1% in the fourth quarter of 2022.
The latest figure translated into a 0.4% quarterly growth rate, according to preliminary figures released by the Cabinet Office on Wednesday.
“While we need to be mindful of downside risks to the global economy, we expect the economy to continue its moderate recovery,” Economy Minister Shigeruyuki Goto said, citing improving consumer sentiment, strong business spending and rising wages at major companies.
The Topix rose 0.4% and the Nikkei 0.8% after the GDP release, both approaching their highest levels since Japan’s market bubble burst in the final days of 1989.
Wednesday’s rally in Tokyo extended a rally in Tokyo that has pushed the Topix up more than 14% since the start of the year. Driving the share price gains are foreign investors’ interest in the prospect of improved corporate governance and management’s feeling an obligation to work harder to boost the share price.
The rally was underpinned by optimism that Japan may have passed a key inflection point, locking in expectations for higher wages and higher consumer spending.
Household spending, which accounts for more than half of Japan’s GDP, rose 0.6% from the previous quarter, while business investment also rose more than forecast for a 0.9% rise.
The recovery in consumption was driven by the lifting of pandemic-related restrictions and the return of overseas tourists as the Japanese government recently downgraded Covid-19 to the same status as seasonal flu.
But exports of goods and services fell 4.2 percent, the first decline in six quarters, amid a slump in the global semiconductor market.
“The figures are not strong enough to suggest that economic conditions are buoyant due to the drop in exports,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.
The data could provide some support to the BOJ, as its new governor, Kazuo Ueda, faces the challenge of unwinding massive easing measures if consumer prices continue to rise at their fastest pace in four decades, he said.