Japan Economy Returns to Black After First Dip in Two Years

Hay fever takes a toll on Japan's economy

But the country is likely to struggle to grow strongly in the coming quarters.

The economy grew 0.5 per cent quarter-on-quarter in the April-June period, compared with a 0.2-per cent decline in January-March, according to data from the Cabinet Office.

According to yesterday's data, private consumption - which accounts for about 60 percent of Japan's GDP - rose 0.7 percent, recovering from a 0.2 percent decline in the first quarter.

The gain was more than the median estimate for a 0.2 per cent increase and marked a rebound from a revised 0.2 per cent fall in the first quarter, it showed. "If Washington imposes higher auto tariffs, its impact on Japan's auto industry would be significant".

Kentaro Arita, senior economist at Mizuho Research Institute, estimated the USA tariffs could cost Japan's auto industry as much as US$10 billion. "It's a question of how much", he said in a note to investors. This helps push up wages but has also caused capacity constraints because some companies are shortening operating hours due to a lack of workers. "The signs point to a slower pace of overall growth".

External demand - or exports minus imports - was expected to add 0.1 percentage point to growth, the poll found, the same rate of contribution seen in the first quarter.

More news: ICBC rate model released

The United States has pressured Japan for a bi-lateral free-trade agreement as a way to lower the US trade deficit.

"The pace of the global economic growth, except that of the USA, is slowing down but it is still expanding, so Japan's exports will likely pick up as well", said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

Top U.S. and Japanese trade officials said they better understood each other's positions after talks on Thursday, while Tokyo appeared to stick to its position of avoiding a bilateral free-trade agreement.

Japan has repeatedly said it prefers multilateral trade negotiations, which put it at loggerheads with the United States.

This has lead to an increase in tension between the United States and China as the world's two largest economies exchange retaliatory tariffs.

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