The annualized 2.1 percent growth of Japan's economy in the January-March period belies the weakness of domestic demand that led to the steepest fall in imports in 10 years — with the sharper than anticipated drop in net imports shoring up gross domestic product for the quarter. The GDP growth for the two consecutive quarters does not warrant any optimism over the course of the economy, as other indicators point to increasing signs that it may be losing steam as uncertainties prevail concerning overseas demand with intensifying trade war between the United States and China.
The government maintains that economic conditions remain steady, citing the robust job market data and corporate earnings. But regardless of whether it changes its official assessment, the state of the economy calls for more policy steps to drive up domestic demand as the main engine of growth.
The economy expanded an inflation-adjusted 0.5 percent from the previous quarter, which translates into 2.1 percent growth in annualized terms, despite the dip in most of its key components. Consumer spending, which accounts for 60 percent of GDP, edged down 0.1 percent for the first fall in two quarters, while capital investments by businesses, another key pillar of domestic demand, declined by 0.3 percent, reflecting poor appetite for investment as output falls due to tumbling exports to China. Public investments rose 1.5 percent for the first gain in five quarters, with the implementation of extra budget spending on anti-disaster measures in response to a spate of natural disasters last year.