Japan’s Economy Recovers Pre-Pandemic Size on Consumption Gain

The world's third largest economy recovered to its pre-pandemic size in the second quarter as consumer spending picked up.

The Cabinet Office data shows that the gross domestic product grew at an annual rate of 2% in the second quarter. The size of the economy was above what it was at the end of last year. The first quarter GDP was revised upward.

The economy got a boost from the end of the Pandemic Restrictions. Consumer spending and business spending led the growth in Japan. The gains were less than expected, showing that demand has been moderate.

Downside risks are mounting at home and abroad. There has been a record number of Covid infections reported in Japan. Economic activity has not been restricted so far. People's mobility is falling.

“Looking ahead, we expect GDP growth to slow in 3Q. Persistent cost-push inflation and a surge in new virus cases point to downside risks for the recovery.”

-- Yuki Masujima, economist

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The US and Europe are fighting inflation while China is sticking to its zero- Covid policy. The war in Ukraine has disrupted food and energy supplies.

Japan's inflation is moderate, but prices may rise faster than wages. Paychecks in Japan have been falling for three months in a row.

The Bank of Japan is expected to continue with their ultra-low rates policy despite the Prime Minister's cabinet shuffle last week. He will focus on spending existing reserve funds first before reaching for additional debt issuance. He said last week that he would be ordering additional measures to deal with inflation.