Higher capital spending saves Japan’s economy from further contraction

Japan’s economy contracted less than expected in the January-March period, thanks to upward revisions to data on capital spending and inventories, offering modest support to the central bank’s plans to raise interest rates again this year.

Analysts expect the Japanese economy to have reached its lowest levels in the first three months of the year, although the continued weakness of the yen and turmoil at major auto factories continues to cast a shadow over the outlook for the current quarter.

“The revised GDP results made it easier for the Bank of Japan to feel encouraged about raising interest rates in the future, as it can assess that capital investment is recovering even slightly,” said Kohei Okazaki, chief economist at Nomura Securities.

Cabinet Office data showed Monday that Japan’s gross domestic product contracted by 1.8 percent on an annual basis in the first quarter compared to the previous three months, a smaller decline than economists’ average expectations of a contraction of 1.9 percent, and lower than a contraction of 2.0 percent compared to the initial reading.

According to the revised figures, the Japanese economy contracted by 0.5 percent on a quarterly basis, after adjusting prices, the same number issued in the preliminary reading last month.

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