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Japan Bounces Back to Economic Growth as Coronavirus Fears Recede

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TOKYO — Restaurants are full. Malls are teeming. Persons are traveling. And Japan’s economy has begun to grow again as consumers, fatigued from greater than two years of the pandemic, moved away from precautions which have kept coronavirus infections at among the many lowest levels of any wealthy country.

Lockdowns in China, soaring inflation and brutally high energy prices couldn’t suppress Japan’s economic expansion as domestic consumption of products and services shot up within the second three months of the yr. The country’s economy, the third largest after america and China, grew at an annualized rate of two.2 percent during that period, government data showed on Monday.

The second-quarter result followed growth of 0 percent — revised from an initial reading of a 1 percent decline — through the first three months of the yr, when consumers retreated to their homes within the face of the rapid spread of the Omicron variant.

After that initial Omicron wave burned out, shoppers and domestic travelers poured back onto the streets. Case numbers then quickly galloped back to record highs for Japan, but this time the general public — highly vaccinated and bored with self-restraint — has reacted less fearfully, said Izumi Devalier, head of Japan economics at Bank of America.

“After the Omicron wave ended, we had a really nice jump in mobility, a lot of catch-up spending in categories like restaurant and travel,” she said.

The brand new growth report indicates that Japan’s economy may finally be back on target after greater than two years of yo-yoing between growth and contraction. Still, the country stays an economic “laggard” compared with other wealthy nations, Ms. Devalier said, adding that customers, especially older people, “are still sensitive to Covid risks.”

As that sensitivity has slowly declined over time, she said, “we’ve got had this very gradual recovery and normalization from Covid.”

The second-quarter growth got here despite stiff headwinds, particularly for Japan’s small- and medium-size enterprises.

China’s Covid lockdowns have made it hard for retailers to stock in-demand products like air-conditioners, and for manufacturers to acquire some critical components for his or her goods.

A weak yen and better inflation have also weighed on firms. Over the past yr, the Japanese currency has lost greater than 20 percent of its value against the dollar. While that has been good for exporters — whose products have grown cheaper for foreign customers — it has driven up prices of imports, which have already change into dearer due to shortages and provide chain disruptions brought on by the pandemic and Russia’s war in Ukraine.

Updated 

Aug. 12, 2022, 5:21 p.m. ET

While inflation in Japan — at around 2 percent in June — remains to be much lower than in lots of other countries, it has forced some firms to substantially raise prices for the primary time in years, potentially dampening demand from consumers accustomed to paying the identical amounts yr after yr.

The gradual return to normal economic activity produced strong growth in private investment, Monday’s data showed.

The expansion was driven partially by spending to enhance firms’ sustainability and digital infrastructure — efforts strongly promoted by government policies, said Wakaba Kobayashi, an economist on the Daiwa Institute of Research.

Still, it isn’t clear how long that growth can proceed, she said. Amongst many businesses, “there may be a way that the worldwide economy goes to proceed to decelerate,” she said. The economies of america, China and Europe have slowed more rapidly than expected in recent months due to the Ukraine war, inflation and the pandemic.

Japan faces other challenges each at home and abroad. Small- and medium-size enterprises specifically are more likely to struggle as pandemic subsidies come to an end and foot traffic to their businesses stays below prepandemic levels.

Moreover, geopolitical tensions are creating greater uncertainty for Japan’s key industries. Frictions between america and China over Speaker Nancy Pelosi’s visit to Taiwan this month have raised concerns amongst Japanese policymakers about possible disruptions to trade. Taiwan is Japan’s fourth-largest trade partner and a critical producer of semiconductors — essential components for Japan’s large automobile and electronics industries.

As for Japan’s overall economic outlook, “short term, momentum is pretty good, but beyond that, we are literally quite cautious,” Ms. Devalier said.

At home, she expects consumption to slow as people adjust to the brand new normal of living with the pandemic and their enthusiasm for spending dims. Wage growth, which has been stagnant for years, is falling behind inflation, which is more likely to affect spending. And, she said, “for manufacturing and exports we expect a slowdown in momentum reflecting the indisputable fact that we expect global growth to be weaker.”

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