Japan’s Longest Stretch of Economic Growth in 28 Years Ends

Japan’s Longest Stretch of Economic Growth in 28 Years Ends

The economy shrank at an annualized pace of 0.6% in the January-March quarter

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A pedestrian walks past a restaurant in Yokohama, Japan, in February. PHOTO: AKIO KON/BLOOMBERG NEWS

Japan’s economy contracted in the first three months of 2018 due to weak private consumption and business investment, putting the brakes on the nation’s longest growth streak in 28 years, government data showed.

The world’s third-largest economy shrank at an annualized pace of 0.6% in the January-March period, compared with revised 0.6% growth in the final quarter of 2017. The contraction was the first since the final quarter of 2015.

It comes as the Japanese economy seemed to have finally escaped decades of stagnation, helped by economic policies including the Bank of Japan’s aggressive monetary easing.

The new data are a setback for Prime Minister Shinzo Abe, who has used the run of growth as evidence of the success of his economic platform, known as Abenomics. Mr. Abe, who faces a party leadership election in September, has also been under pressure from opposition lawmakers’ allegations that he did favors for friends, charges he denies.

Still, government officials and analysts expect the decline to be temporary. Some analysts expect the economy to rebound as soon as this current April-June quarter.

“There is no change in our view that the economy is recovering moderately,”​Economy Minister Toshimitsu Motegi said.

An anticipated pickup in private-sector demand will help the economy return to growth, he said.

Private consumption is expected to recover in part due to higher wages, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance. Overall cash wages rose 2.1% from a year earlier in March—their fastest pace since June 2003, according to recent data released by the labor ministry.

Private consumption, which accounts for about 60% of GDP, stayed flat in the latest quarter after heavy snow in January and February caused people to stay home, while higher fresh-food and energy prices made consumers reluctant to spend.

Still, some economists say any return to economic expansion would likely be milder than previous quarters. Capital Economics senior Japan economist Marcel Thieliant expects annual growth to slow to 1.2% this year from 1.7% in 2017.

Trade disputes between the U.S. and China could also weigh on Japan if supply chains are affected.

Exports, one of the key engines of the Japanese economy, added just 0.1 percentage point to overall non-annualized growth in the January-March period as demand for electronic parts, such as those for smartphones, slowed.