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Japan suffers worse-than-expected contraction of 0.5 per cent

Japan suffers worse-than-expected contraction of 0.5 per cent

Japan's economy contracted by a worse-than-expected 0.5 percent in the first three months of the year, official government data showed Thursday.

Gross domestic product in the world's fourth-biggest economy was expected to have shrunk by only 0.3 per cent from the previous quarter, according to economist forecasts.

Exports shrank 5.0 per cent, after growing 2.8 per cent the previous quarter, while imports fell 3.4 per cent, data from the cabinet office showed.

Compared with the first quarter of 2023, GDP fell 2.0 per cent compared with a forecasted drop of 1.2 per cent, according to Bloomberg News.

The economy was hit by a major earthquake on January 1 on the Noto peninsula and by halts in production at auto giant Toyota's Daihatsu subsidiary.

Japan has been flirting with recession since last year, with zero growth -- revised Thursday from an expansion of 0.1 per cent -- between October and December.

In the previous quarter, from July to September, GDP suffered a major contraction of 0.9 per cent, also revised on Thursday from an earlier reading of minus 0.8 per cent.

Technical recession is generally defined as two successive quarters of falling GDP.

Japan, which was overtaken by Germany as the world number three economy in 2023, has battled for decades stagnant growth and deflation.

Inflation, however, has been picking up, allowing the Bank of Japan in March to raise interest rates for the first time in 17 years. Last month, the BoJ kept rates on hold.

The BoJ has been a global outlier in sticking to an ultra-loose monetary policy while other central banks pushed rates up as they fought against surging inflation.

The resulting wide differential has added to pressure on the yen, which in recent weeks has hit three-decade lows against the dollar.

In late April and early May, the yen briefly rose sharply against the greenback, prompting speculation the Japanese government had intervened in the market.

Tokyo declined to comment on whether it had done so.

Japan's government last intervened in markets to support the yen in October 2022, when it spent 6.3 trillion yen on forex intervention operations.

Japan's currency was once regarded as a safe haven, expected to rise in value in times of global turmoil.

But that has not proved true in recent years, with the yen cratering from around 115 per dollar before Russia's February 2022 invasion of Ukraine to 160 last month.

A weaker yen is good for Japanese exporters and foreign visitors, but it makes imports and foreign travel for outbound tourists more expensive.

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