Japan's economy shrinks as consumers hold back on spending

TOKYO (AP) — The Japanese economy contracted at an annual rate of 1.2% in the July-September quarter, as consumption declined amid rising prices.

Seasonally adjusted real gross domestic product for the world’s third-largest economy shrank 0.3% on-quarter, according to government Cabinet Office data released Tuesday. The annual rate shows how the economy would have grown if the quarterly rate were to continue for a year.

Japan’s GDP, or the sum of the value of a nation’s products and services, was weaker than analysts had expected, coming after three quarters of moderate growth. Like many nations, Japan has suffered as the coronavirus pandemic slammed industrial production and tourism.

Private consumption grew 0.3% in July-September, slowing down from the 1.2% growth recorded the previous quarter. Private investment grew 1.5%, down from 2.4% growth in the previous quarter.

Another factor is the Japanese yen’s fall against other currencies, especially the U.S. dollar. The Federal Reserve has been tightening the key interest rate, but the Bank of Japan has not.

The differential in interest rates tends to boost the value of the currency of the nation with higher interest rates against the nation with zero or minus rates like Japan’s, according to analysts. The U.S. dollar, trading at about 115 Japanese yen a year ago, now costs about 140 yen.

Although the weak yen has generally tended to work as a boon for Japanese exporters like automaker Toyota Motor Corp. and video game developer Nintendo Co., it also makes imports more expensive. The latest GDP data showed dropping exports.

A weak yen is devastating for imports, especially for Japan, imports almost all its oil, as well as much of its food. The war in Ukraine has also sent such prices higher.

Inflation in Japan at...