The Japanese economy faced a setback in the first quarter of this year, with a 2% annual shrinkage attributed to declines in consumption and exports. Despite a low unemployment rate of 2.6%, slow wage growth and rising prices have impacted the economy due to the weak yen against the U.S. dollar.
The preliminary GDP for January-March saw a 0.5% quarter-to-quarter decrease, reflecting the challenges faced by Japan’s economy. Analysts had predicted better results, as sluggish consumer spending and disruptions in car production affected overall growth.
The effects of the safety scandal at Toyota Motor Corp.’s subsidiary and the halt in production at Daihatsu Motor Co. posed additional obstacles. However, with signs of normalization since March, experts anticipate a rebound later in the year.
The data presents a dilemma for Japan’s central bank on the timing of interest rate hikes, especially given the current economic conditions. While a raise in interest rates is on the horizon, policymakers may proceed cautiously in a weakened economy.
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