After 2 years of growth, Japan economy shrinks

The world's third-largest economy contracted by 0.2 per cent quarter-on-quarter in the January-March period, compared with growth of 0.1 per cent at the end of 2017, the Cabinet Office said.

Private consumption was flat after an uptick of 0.2 per cent in the final quarter of last year. Private residential investment plunged another 2.1 percent after a 2.7 percent fall in the previous quarter.

"It is certain that the heavy snowfall in January and February and rises in fresh vegetable prices reduced disposable income but still (private consumption) is weak," said SMBC Nikko Securities chief market economist Yoshimasa Maruyama. Consumers will keep purse strings tight "unless the pace of wage increases shows a clear acceleration", he said in a commentary released ahead of the data release.

But economists believe the drop would be temporary.

"The weak Q1 GDP growth is a one-off event as weak personal consumption coincided with other special factors," said Katsunori Kitakura, lead strategist at Sumitomo Mitsui Trust Group. "The Japanese economy should see a modest recovery buoyed by the global economy, with exports in particular benefiting from this, helping Japan's GDP revert back to an uptrend from Q2 2018 onwards," he said in a commentary earlier this week.