The Japanese economy contracted at an annual rate of 1.8% in the first quarter of this year, according to revised government data released Monday. This is a slight improvement over the initial estimate of a 2.0% decline.
The adjustment was primarily due to a minor uptick in private sector investments, which were revised to minus 0.4% from the previous minus 0.5%.
Despite this, seasonally adjusted real GDP, which measures the value of a nation's goods and services, remained negative due to declines in exports and consumption compared to the previous quarter.
On a quarterly basis, the economy fell by 0.5% during the January-March period, consistent with last month's results, as reported by the Cabinet Office. The annual rate extrapolates the quarterly rate to reflect a full year.
Several factors have contributed to the economic downturn. Wage growth has been sluggish, and the cost of imports has risen due to the depreciation of the Japanese yen against the U.S. dollar. The dollar is currently trading at nearly 157 yen, up from about 140 yen a year ago.
While the weak yen has boosted tourism, it has also made imports more expensive, a significant issue for a country that imports nearly all its energy. Additionally, sluggish consumer spending, which constitutes half of Japan's economic activity, has been a drag on growth.
Last week, Toyota Chairman Akio Toyoda issued an apology for widespread fraudulent testing practices, including the use of inadequate or outdated data in collision tests, incorrect testing of airbag inflation, rear-seat damage in crashes, and engine power tests. While vehicle safety is reportedly unaffected, the companies aimed to expedite the testing process.
Investors are closely monitoring the Bank of Japan, which meets later this week to discuss monetary policy. Earlier this year, the central bank raised interest rates for the first time since 2007, but only to a range of zero to 0.1% from minus 0.1%.
"The Japanese central bank’s stance will be watched closely, especially given the prevailing domestic currency weakness. Japanese manufacturers are facing the fastest rise in input costs," S&P Global Market Intelligence noted in a report.
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