Amid the virus emergency in key parts of the country, Japanese consumers have ensured the country does not slide into recession for the past three months.

The price for this could be high.

The fifth wave of corona infections weighs on the further economic prospects.

Patrick Welter

Correspondent for business and politics in Japan, based in Tokyo.

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The economy grew faster than expected in the quarter from April to June by 0.3 percent compared to the previous quarter.

This was shown by a first estimate by statisticians on Monday.

Private consumption is making the largest contribution to growth, increasing by 0.8 percent compared to the previous quarter.

In surveys, analysts had only expected consumption to stagnate.

Japan, the third largest economy in the world, avoided the recession with growth of 0.3 percent.

In the first quarter of the year the economy shrank by 0.9 percent.

But comments on the largely consumption-driven growth were muted.

Tokyo's governor warns of disaster

Economy Minister Yasutoshi Nishimura said he had very mixed feelings after the data was published. Nishimura emphasized that households have a great desire to consume, despite the restrictions under the virus emergency. Analysts rated the increase in consumption as an indication that people were on the streets despite the anti-Covid restrictions and thus contributed to the spread of the virus. "Our priority is to prevent the virus from spreading," said the minister. "If this situation drags on, it is very bad for the economy."

With the increasing spread of the delta variant of the novel corona virus, Japan has recently repeatedly reached new daily highs for infections. In Tokyo, the center of the wave of infections, the seven-day incidence in the past few days was 210 people infected per 100,000 population - around three times as much as three weeks ago. Tokyo Governor Yuriko Koike warns that the situation in Tokyo is reaching disaster level. Other prefectural governors are demanding tougher government action.

At the beginning of July, the government imposed the fourth virus emergency under the impression of rising infection numbers in Tokyo and the surrounding area, which offered the Olympic Games a strange setting, largely without spectators.

A regional expansion and an extension of the emergency beyond the end of August is increasingly likely.

It is questionable whether this will dampen private consumption.

Recent growth data suggested that consumer spending was building immunity to such restrictions, commented Tom Learmouth of Capital Economics.

Hope for the end of the year

Analysts expect only moderate growth for the current quarter and are counting on a stronger recovery at the end of the year. By then, the government wants all Japanese who want to be vaccinated to be vaccinated. Japan had only started vaccinations months after other major industrialized countries, which is now reflected in greater economic vulnerability in the pandemic. The recovery in the second quarter was significantly weaker than in the other large industrialized countries of the group of seven (G-7). The approval of Prime Minister Yoshihide Suga, who has to face the election of party leader of the Liberal Democrats and a lower house election in the fall, is falling.

A relatively robust increase in investment by private companies in the second quarter of 1.7 percent compared to the previous quarter suggests that managers are already looking beyond the virus wave. According to the preliminary information, exports recently increased by 2.9 percent compared to the previous quarter, while imports rose by 5.3 percent.