Japan's economy contracts, but at smaller rate than thought

TOKYO (AP) — The Japanese economy contracted in the first quarter, but at a slower pace than earlier estimated, the government said Wednesday.

The world’s third-largest economy contracted at an annual rate of 0.5%, according to Cabinet Office data. That was smaller than the 1.0% contraction in the preliminary estimate for Japan’s real gross domestic product, or GDP, released in May.

The annual rate shows how the economy would have grown if the quarterly rate were to continue for a year. Japan’s economy contracted 0.1% in January-March from the previous quarter, better than the 0.2% quarter-on-quarter contraction in the preliminary data.

Consumer spending and other private demand was stronger than previously thought.

The upward revision was a pleasant surprise for analysts.

“Looking ahead, we expect GDP to rebound in 2Q mainly due to better private consumption, yet higher inflation on commodities will likely limit the gains in real terms,” Robert Carnell, regional head of research Asia-Pacific at ING, said in a report.

The expected reopening of the country to tourists as limits imposed to curb COVID-19 infections are lifted, should also boost growth.

On the negative side, Japan, which imports almost all its oil, much of its food and various products, has been slammed by rising prices for energy and other commodities, partly because of the war in Ukraine.

Japan has for years been fending off deflation, or a spiraling down of prices. Low wage growth and an aging and shrinking population have slowed economic activity and discouraged corporate investment.

Bank of Japan Gov. Haruhiko Kuroda apologized Tuesday for recently referring to a “tolerance for higher prices” among Japanese people, a comment interpreted as welcoming higher prices. Kuroda was grilled in parliament,...