Japan’s economy is shrinking, but less than previously estimated

Japan’s economy shrank 1.8% in the first quarter from the previous quarter, according to revised government data released on Monday, a slight improvement from the initial forecast of 2.0%.

The revision was mainly due to a 0.4% drop in private sector investment, which was higher than the previous estimate of a 0.5% drop.

Seasonally adjusted real gross domestic product (GDP), which measures the value of a country’s goods and services, continued to show negative growth as exports and consumption declined from the previous quarter.

Japan’s Cabinet Office reported that on a quarterly basis, Japan’s economy shrank 0.5% in the January-March period, in line with last month’s data.

The annual rate represents a hypothetical scenario where the quarterly interest rates continue for a full year.

Wage growth remains sluggish and the depreciation of the yen has led to higher import prices be opposed to Currently, the dollar is trading at nearly 157 yen, compared with about 140 yen a year ago.

A weaker yen has spurred a tourism boom but has also made imported goods more expensive, a major problem for a country that imports nearly all its energy. Further hampering growth is weak consumer spending, which accounts for half of Japan’s economic activity.

Another negative factor is the ongoing scandal at several major automakers, including Toyota Motor Corp., over improper model testing that is crucial to Japan’s industrial reputation, which has led to the suspension of some models.

Government officials raided Honda Motor Co.’s Tokyo headquarters on Monday, and Japanese media reported that Mazda Motor Corp. would soon be raided. Toyota Motor Corp. and Suzuki Motor Corp. have already been raided.

Last week, Toyota Chairman Akio Toyoda apologized for a number of fraudulent tests, including the use of inadequate or outdated crash test data, faulty tests for airbag inflation, rear seat damage assessments and engine power testing. Although vehicle safety was not affected, the companies were reportedly intended to speed up the testing process.

Investors are also closely watching the next move from the Bank of Japan, which will hold its monetary policy committee meeting later this week. Earlier this year, the BOJ raised interest rates for the first time since 2007, raising the range to 0 to 0.1% from -0.1% previously.

“The Bank of Japan’s stance will be closely watched, especially given the current weakness of its currency,” S&P Global Market Intelligence said in a note. “Japanese manufacturers are facing the fastest rise in input costs.”

The world’s fourth-largest economy still has a relatively low unemployment rate of about 2.6 percent, but it faces a severe labor shortage, with a record low birth rate last year and a drop in marriage rates.

These demographic trends could pose long-term challenges, with analysts worrying about Japan’s weak per capita output and diminished influence on the global stage, and even possible security risks.

The International Monetary Fund (IMF) predicts that Japan’s GDP will slip to fifth place in the world next year, behind the United States, China, Germany and India.