Japan’s economy shrank 2.0% annualized in the first quarter due to weak consumption and external demand. This presents a challenge as the central bank plans to raise interest rates. Private consumption, accounting for over half of the Japanese economy, declined 0.7%, marking the fourth consecutive quarter of decline. Capital spending fell 0.8%, and external demand lowered first-quarter GDP estimates by 0.3 percentage points. Policymakers anticipate rising wages and income tax cuts to boost consumption. The Bank of Japan is expected to take a cautious approach in unwinding easy money conditions due to the fragile economy.
