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Economy

Japan's economy grows faster-than-expected 1.8% in April-June

Rising consumption brings in third consecutive quarter of growth despite trade war

A shop clerk carries a box of shoes under sale signboards at a shoes retail store at a shopping district in Tokyo. Consumption has risen in Japan.    © Reuters

TOKYO -- Japan's economy expanded for a third straight quarter, though at a slower pace, in the three months through June amid escalating trade tensions and uncertainty over the global economy.

Gross domestic product for the quarter expanded 0.4%, or at an annualized rate of 1.8%, according to preliminary figures released by the Cabinet Office on Friday. First quarter growth was revised to 2.8%, up from 2.2%.

The median forecast was for annualized growth of 0.4%, according to a survey by Nikkei Quick News.

The slowdown was attributed to weak exports, which offset solid consumer spending and private investment.

Japan had a 10-day string of holidays in May to mark Emperor Naruhito's ascension, and the longer-than-usual stretch apparently helped boost leisure spending.

Also contributing to private consumption was strong demand for automobiles, thanks to new models being released during the quarter. Consumers also shelled out for air conditioners amid warm temperatures in May and June.

The robust consumer spending "likely reflects to a certain degree of front-loaded demand ahead of the planned consumption tax hike in October," economists at Goldman Sachs said in a note, adding that the pattern will continue through September.

Business investment also grew at a healthy clip amid robust demand for new offices, data centers for 5G networks and other facilities. Business expenditures were also driven by continued investments in labor-saving technology.

On the other hand, exports decelerated for the second straight quarter, reflecting slowing demand in China for Japanese semiconductor-making equipment and metal-processing machinery.

Despite the healthy GDP growth, inflation remains subdued, especially for exported items, leaving nominal economic growth at an annualized pace of 1.7%.

The global economic outlook remains uncertain in the face of heightened U.S.-China tensions. The International Monetary Fund in July lowered its global growth forecast for 2019 by 0.1 percentage point to 3.2%, although it said it expects growth to pick up to 3.5% in 2020.

The Cabinet Office in July cut its forecast for Japanese growth to 0.9% from 1.3% for the year through March, 2020, citing weak exports. That is equal to the latest IMF outlook.

Japan's exports fell, year on year, for the seventh straight month in June, as China's GDP growth slowed to 6.2% for April to June, the slowest pace since it began publishing data in 1992.

Against this backdrop, Bank of Japan Gov. Haruhiko Kuroda said last week that he is "more positive" about easing policy further to reach the central bank's 2% inflation target.

The Goldman economists say a further cooling of the global economy amid renewed U.S.-China trade friction presents risks. "If uncertainty around these risk factors in particular increases further," they said, "the possibility of a decline in capex, which has acted as a key driver of the Japanese economy in recent years, needs to be borne in mind."

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