Japanese economy shrinks 0.5% in third quarter

TOKYO, Japan — Japan's economy contracted by a worse-than-expected 0.5% in the third quarter, government data showed Wednesday, in a further blow to struggling Prime Minister Fumio Kishida.

The shrinking of the world's number three economy, following two consecutive quarters of growth, was worse than the market consensus of a 0.1% contraction.

Private demand, including private residential and corporate investment, was down 0.6%. 

Exports grew just 0.5%, compared with 3.9% in the previous quarter. Imports were up 1.0%.

In the last quarter, Japan reported economic growth of 1.5%, smashing expectations as car exports rebounded and tourists flooded back.

But the figure was later revised down and economists warned the data also underscored the continued weakness of domestic demand as Japanese families struggle with rising prices.

Kishida's poll ratings have hit their lowest levels since taking office two years ago as consumers reel from rising prices.

The prime minister announced this month a stimulus package worth 17 trillion yen ($113.2 billion) aimed at boosting the economy and easing the pain of inflation.

The government has already injected hundreds of billions of dollars into the economy over the past three years in response to the Covid-19 pandemic.

The latest plan involves income and residential tax reductions of 40,000 yen per person, and 70,000 yen cash handouts to low-income households.

Japan was for decades beset by deflation but, like other economies around the world, prices have risen since the Ukraine war began in February 2022. 

A weaker yen, meanwhile, while welcome news to Japanese exporters, makes imports pricier and stokes inflation for households.

Unlike other major central banks, the Bank of Japan refused to tighten monetary policy and instead continues to keep interest rates below zero and bond yields ultra-low in a bid to boost economic growth. 

That has come even as inflation continues to rise, with officials insisting the increase is temporary despite ramping up its forecasts for this year and next.

But the BoJ's stance has added to pressure on the yen, one of the world's worst-performing major currencies in 2023.

Kishida, 66, can govern