Japan’s economy shrinks far more than expected in third quarter

Japan’s economy shrank way more than expected in the July-September period, provisional government data showed Wednesday, amid slowing global demand and rising domestic inflation.

Provisional gross domestic product fell 2.1% in the third quarter compared to a year ago, after expanding 4.8% in April-June. This was a bigger contraction than the expected 0.6% decline in a Reuters poll.

The world’s third-largest economy also contracted 0.5% in the third quarter from the previous quarter, after expanding 1.2% in the second quarter from the first. This was also a bigger contraction than expectations for 0.1% contraction.

Both declines were Japan’s first in four quarters and are part of an unstable trend since the start of the Covid-19 pandemic in early 2020 that has seen periods of economic expansion alternating with contraction.

It underscores the complex challenges for the Bank of Japan as Governor Kazuo Ueda contemplates an eventual exit from its ultra-easy monetary policy, while bolstering the case for the Japanese government’s 13.2 trillion yen ($87 billion) economic package that will feature subsidies and payouts to low-income households to mitigate soaring energy and utility bills and aimed at curbing rising living costs.

The weaker GDP print was partly driven by weaker than expected domestic capital expenditure, which contracted 0.6% in the third quarter from the second quarter — as opposed to expectations for a 0.3% expansion, according to the same government release.

Private consumption in Japan was flat in the third quarter from the previous quarter, as domestic and foreign demand weighed on the economy.

This is a developing story. Please check back for more updates.