Japan’s economy shrinks for first time in three quarters

TOKYO — Japan’s economy shrank for the first time in three quarters in the July-September period due to sluggish spending by domestic consumers and companies.

The Japanese economy contracted 0.5% in the three months to September from the previous quarter. That compares with 1.1% growth in the April-June quarter and economists’ forecast for a 0.1% contraction.

The economy shrank 2.1% on an annualized basis, which reflects what would happen if the third-quarter pace continued for a full year. The results came in contrast with growth in the U.S. and China, which showed signs of acceleration during the third quarter.

Japanese private consumption was flat from the previous quarter. Price increases made consumers hesitant to spend, offsetting a post-pandemic recovery in services sectors, including travel and dining.

Capital expenditures fell 0.6% amid uncertainty over the global economic outlook. External demand–or exports minus imports–subtracted 0.1 percentage point from Japan’s gross domestic product.

Economists expect the Japanese economy to return to a growth path in the October-December period, supported by a recovery in domestic demand and the revival of inbound tourism.

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