Japan's economy contracted for first time in two years in Q1 2018

Koichi Kamoshida  Getty Images Koichi Kamoshida  Getty Images

Economists don't expect the period of contraction to last long.

The contraction, which was driven by a decline in investment and consumption and weaker exports, comes as Japan Inc worries about the possible effect of U.S. President Donald Trump's protectionist policies on global trade. "The global economy is performing well and a yen is trading beyond 110 yen against the dollar, so once exports start to grow again, the economy will return to a moderate growth path".

A sharp slowdown could also add to the headaches of a premier grappling with domestic issues such as suspected favoritism, declining support, and opposition pressure for his finance minister to resign. The bank is widely expected to keep its benchmark lending rate unchanged at 1.50%.

Tokyo stocks opened lower Wednesday following Wall Street's overnight decline and on reports just before the opening bell that Japan's economy shrunk at an annualized rate of 0.6 percent in the January-March quarter.

That marked the end of the longest sequence of growth since a 12-quarter run between April-June 1986 and January-March 1989 during the asset-inflated bubble economy.

Private consumption, which makes up about 60 percent of the economy, probably stood flat after a 0.5 percent gain in the fourth quarter.

Fourth quarter growth was revised to an annualized 0.6 percent, down from the 1.6 percent estimated earlier.

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