Japan's economy rebounds as consumers, companies spend more

In this July 20, 2018, photo, people walk in a building in Tokyo. Japan reports its economy resumed its longtime expansion in the last quarter as consumers and businesses stepped up spending. (AP Photo/Eugene Hoshiko)
In this July 20, 2018, photo, people walk on a street in Ginza shopping district in Tokyo. Japan reports its economy resumed its longtime expansion in the last quarter as consumers and businesses stepped up spending. (AP Photo/Eugene Hoshiko)

TOKYO — Japan's economy resumed its longtime expansion in the last quarter as consumers and businesses stepped up spending, the government said Friday.

Preliminary data showed that trade weighed slightly on growth, a worrying sign as Japan braces for tariffs that the administration of President Donald Trump plans to impose on imports of steel and, possibly, autos and auto parts.

The world's third largest economy grew at a 1.9 percent annual pace after contracting by 0.6 percent in January-March, the Cabinet Office said.

In quarterly terms, gross domestic product expanded 0.5 percent in April-June, rebounding from a 0.2 percent contraction.

Consumers spent more thanks partly to a rise in earnings mostly fueled by strong half-year bonus payments. The 2.1 percent gain in cash earnings in the last quarter was the strongest since 1997 and job growth also remained strong, but a large share of that income likely went into savings, Marcel Thieliant of Capital Economics said in a commentary.

He said he expects spending to remain relatively strong ahead of a sales tax hike expected next year.

"While GDP started expanding again in the second quarter, growth isn't as vigorous as last year. With the economy running into capacity constraints, we think that activity will remain sluggish for now," Thieliant said.

The contraction early in the year interrupted Japan's longest expansion in almost three decades. But growth has remained weaker than hoped for.

Still, the news could help Prime Minister Shinzo Abe in his campaign to remain leader of the ruling Liberal Democratic Party in an election in September.

The outlook for trade is a looming uncertainty, given the heavy reliance of Japanese manufacturers on demand from factories in China. Higher tariffs imposed by the U.S. on exports of billions of dollars of Chinese good are likely to pinch a wide array of Japanese industries that supply machinery and parts for electronics, autos and other products.

Trade talks between Japan and the U.S. in Washington on Thursday reportedly made little headway but were due to resume Friday.

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