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May
EU agrees to open doors to vaccinated foreigners
Written by Nur Yasmin
European Union countries agreed on Wednesday to ease COVID-19 travel restrictions on non-EU visitors ahead of the summer tourist season, a move that could open the bloc's door to all Britons and to vaccinated Americans.
Ambassadors from the 27 EU countries approved a European Commission proposal from May 3 to loosen the criteria to determine "safe" countries and to let in fully vaccinated tourists from elsewhere, EU sources said.
They are expected to set a new list this week or early next week. Based on data from the European Centre for Disease Control and Prevention, Britain and a number of other countries would meet the new criteria.
The United States would not, although Americans with proof of vaccination would be welcomed.
One EU diplomat said cases of the Indian variant in Britain would need to be taken into account, although individual EU countries are already setting their own policies. Portugal lifted a four-month travel ban on British tourists on Monday.
Under current restrictions, people from only seven countries, including Australia, Israel, and Singapore, can enter the EU on holiday, regardless of whether they have been vaccinated.
Individual countries can and will still be able to choose to demand a negative COVID-19 test or a period of quarantine.
The current main criterion is that there should be no more than 25 new COVID-19 cases per 100,000 people in the previous 14 days. The trend should be stable or decreasing and there should be a sufficient number of tests, which would need to show a minimum percentage of negative tests. Variants of concern can be taken into account.
The Commission proposed raising the case rate to 100. The EU ambassadors opted instead for 75. For inoculated people to gain access, they would need to have received an EU-approved vaccine, with those with a World Health Organization emergency listing being considered.
These people should have received final doses at least 14 days before travel. Under the plan, EU countries that waive test or quarantine requirements for vaccinated EU tourists are encouraged to do the same for vaccinated non-EU holidaymakers.
Children should also be able to travel with vaccinated parents.
An emergency brake could be used temporarily to stop all but essential travel from a particular country to limit the risk of more infectious coronavirus variants entering the EU. Such a brake has been proposed for India.
The EU plan covers countries of the border-free Schengen area, including non-EU members Iceland, Liechtenstein, Norway, and Switzerland, but not the non-Schengen EU member Ireland. (Reuters)
May
Under U.S. pressure on graft, El Salvador ratifies cooperation deal with China
Written by Nur Yasmin
The release on Tuesday of a U.S. government list labeling 17 Central American politicians as corrupt prompted El Salvador's President Nayib Bukele to praise China, and its congress to ratify a 2019 cooperation agreement with the country.
The office of U.S. Representative Norma Torres, who had requested the report, released the U.S. State Department document. The report named a close aide of Bukele and his former security minister among those "credibly alleged" to have engaged in corrupt acts. Bukele himself was not named.
The list also includes Honduran and Guatemalan legislators and former officials from all three nations. The report said the list is based on "media reporting, credible information or allegations" of corruption, drug trafficking, and using proceeds of crime to finance political campaigns.
After the release, Bukele said on Twitter the list was about "geopolitics" not fighting corruption. And he praised China's $500 million investment in public investments in El Salvador "without conditions," an apparent contrast to aid from Washington and U.S.-backed lenders that is conditioned on good governance.
The State Department did not immediately respond to a request for comment.
On Tuesday night, El Salvador's Congress ratified a cooperation agreement with China, which had been signed back in 2019. The agreement calls for 400 million Yuan - about $62 million - in investment in a water purification plant, a stadium, a library, and infrastructure along Salvador's coast.
Neither China's embassy in El Salvador nor El Salvador's foreign ministry responded to questions about the discrepancy in investment dollars.
Bukele also praised the 500,000 doses of Chinese drugmaker Sinovac Biotech's COVID-19 vaccine due later on Tuesday and thanked China's leader Xi Jinping for the help.
U.S. officials see corruption as a major contributor to a migrant exodus from the region - along with poverty, gang violence and natural disasters. Washington wants to make sure a $4 billion aid package under consideration does not fall prey to graft.
Central American leaders have pushed back on President Joe Biden's anti-corruption strategy. Honduran President Juan Orlando Hernandez, targeted by a U.S. criminal investigation, has warned that U.S. probes jeopardize joint anti-narcotics efforts.
Bukele recently removed top judges and the attorney general, which Washington considered to be unconstitutional. Widely popular Bukele, 39, says the move was justified by his large congressional majority.
El Salvador, which has a dollarized economy closely tied to the United States by trade and a large migrant population, is currently negotiating an over $1 billion loan from the International Monetary Fund, where Washington has a dominant voice.
The loan is likely to include clauses aimed at committing Bukele to democratic standards.
In contrast to Washington's activist posture, China's embassy in El Salvador responded to Bukele's control of the justice system by saying it would not interfere in sovereign matters.
China has in recent years made diplomatic inroads in Latin America, where it sources commodities and jostles for influence with the United States. During the pandemic, China has stepped into the gap left by Western countries and helped poorer nations obtain vaccines.
With Tuesday's vaccine shipment El Salvador will have received some 2.15 million COVID-19 vaccine doses from China for its 6.7 million people, according to the country's embassy in San Salvador.
Neighboring Honduras, which does not have diplomatic ties with China, has asked Bukele to share Chinese vaccines in the absence of supplies from the United States. (Reuters)
May
Singapore Airlines posts record $3.2 bln annual loss, to issue convertible bonds
Written by Nur Yasmin
Singapore Airlines Ltd on Wednesday posted its second-consecutive annual loss, which widened to a record S$4.27 billion ($3.20 billion), and said it would issue S$6.2 billion of convertible bonds to help weather the coronavirus crisis.
The loss for the 12 months ended March 31 was worse than the average S$3.27 billion forecast by eight analysts, according to Refinitiv, and included S$2 billion of impairments largely on the 45 older planes surplus to requirements.
It was also far bigger than the S$212 million annual loss in the prior financial year, its first-ever dip into the red when only one quarter was affected by the pandemic.
Annual revenue fell 76.1% to S$3.82 billion in the financial year ended March 31, with strong cargo revenues not enough to offset an almost 98% fall in passenger numbers.
The airline said it expected passenger capacity to rise to 28% of pre-pandemic levels by June, but much of that is due to strong freight demand sustaining the number of flights. It filled just 13.4% of passenger seats in the financial year ended March 31.
The airline, which has no domestic market, has been one of the world's hardest hit in terms of passenger traffic alongside its Hong Kong-based rival Cathay Pacific Airways Ltd.
A proposed travel bubble between Singapore and Hong Kong that had been due to start on May 26 was postponed for the second time on Monday after a recent rise in COVID-19 case numbers in Singapore.
"This crisis is not over," Singapore Airlines Chairman Peter Seah said in a statement. "While the growing pace of vaccinations has given us hope, new waves of infections around the world mean that restrictions on international travel largely remain in place."
Like other carriers globally, Singapore Airlines has cut jobs, deferred aircraft deliveries, and raised equity and debt financing to help get it through the pandemic.
The airline said it would issue S$6.2 billion of mandatory convertible bonds that were an optional part of a S$15 billion rescue package led by its majority shareholder, state investor Temasek Holdings last year. (Reuters)
May
IOC reassures anxious Japan Olympics will be safe
Written by Nur Yasmin
The International Olympic Committee (IOC) reassured an anxious Japan on Wednesday that the Tokyo Olympics would be safe for athletes as well as the host community, amid mounting opposition to the Games and fears it will fuel a spike in COVID-19 cases.
Speaking in Tokyo alongside senior Japanese officials, IOC chief Thomas Bach said he believed more than 80% of residents of the Olympic Village would be vaccinated or booked for vaccination ahead of the Games set to start on July 23.
He rejected growing calls to cancel the global sporting showpiece, already delayed once due to the pandemic, saying that other sporting events had proved the Olympics could go ahead with strong COVID precautions.
Bach's comments came as Japan kept up a battle with the fourth wave of infections though its slow vaccination campaign has undermined already shaky public confidence that the Games should proceed.
"Together with our Japanese partners and friends, I can only re-emphasize this full commitment of the IOC to organize safe Olympic and Paralympic games for everybody," Bach said.
"To accomplish this, we are now fully focused on the delivery of the Olympic Games."
Less than 30% of medics in Japan's major cities have been vaccinated against the coronavirus, with just 65 days left to the start of the Olympics, the Nikkei newspaper said.
Cabinet figures showed this week that three months into Japan's vaccination push, less than 40% of its medical workers were fully inoculated.
The problem is especially pronounced in the capital, Tokyo, which plays host to the Games, and other large population centers, where the rate of fully vaccinated medical workers was less than 30%, the Nikkei added.
Much of the vaccine supply was concentrated in large hospitals, and there had been problems in the reservation systems for medical staff, it said.
The slow pace of vaccinations of doctors and nurses has been among the complaints cited by medical groups that oppose the Games.
Bach said the IOC would do its part to keep the Japanese public safe, by having additional medical personnel as part of the NOC delegations to support the medical operations and the strict implementation of the COVID 19 countermeasures.
STATES OF EMERGENCY
Much of Japan, including the key cities of Tokyo and Osaka, is under a state of emergency until month-end to rein in infections. The southern prefecture of Okinawa will request its own emergency declaration as new infections reached record highs, it said on Wednesday.
Japan aims to inoculate most of its 36 million people older than 65 by the end of July. To reach that target, it hopes to deliver about a million shots a day, or three times faster than the current pace.
So far, just 3.7% of the population of 126 million have received at least one vaccine shot, the lowest rate among wealthy countries. Initially, the holdup was scant supplies of the vaccine developed by Pfizer Inc and BioNTech SE, the only one approved by regulators.
But arrivals of the Pfizer vaccine have increased dramatically in May, and Japan is expected to approve Moderna Inc’s candidate this week for use in mass vaccination centers. The shot developed by AstraZeneca PLC is also being considered by domestic regulators.
As supply bottlenecks eased, problems with vaccine reservation systems and manpower shortages have cropped up. The government is looking into letting pharmacists give the injections, after a similar move regarding dentists last month. (Reuters)
May
Nepal, Bangladesh Scramble To Secure COVID-19 Shots As India Curbs Exports
Written by Nur Yasmin
Nepal and Bangladesh are making frantic diplomatic efforts to secure COVID-19 vaccines to prop up their faltering inoculation drives as their stocks run out and supply prospects have become clouded by a prolonged Indian curb on vaccine exports.
Reuters reported on Tuesday that India was unlikely to resume major exports of COVID-19 vaccines until October at the earliest as it diverts shots for domestic use, a longer-than-expected delay set to worsen a shortage of supplies coming through the COVAX global vaccine sharing scheme, designed to help low-income countries.
Bangladesh said it urgently needed 1.6 million doses of AstraZeneca COVID-19 vaccine to provide second doses and it had approached several countries for help, including the United States and Canada.
"Bangladesh foreign minister urged the Canadian High Commissioner to pursue with his government so that Bangladesh receives at least 2 million doses of AstraZeneca vaccine from Canada on an emergency basis," the foreign ministry said in a statement.
The ministry said its diplomats were also hoping to secure 4 million doses of the AstraZeneca vaccine from the United States, which plans to share up to 60 million doses of the vaccine.
Bangladesh has an agreement with the Serum Institute of India (SII), which manufactures the AstraZeneca shot, for 30 million doses, but has received only 7 million.
Bangladesh has also turned to China and Russia for supplies of China's Sinopharm and the Russian Sputnik V vaccines after India curbed vaccine exports in April.
Bangladesh has been relying on the AstraZeneca vaccine but only 2% of its 170 million people are fully vaccinated.
'BACK-DOOR DIPLOMACY'
Nepal, which started its vaccination drive in January with 2.35 million doses of the AstraZeneca shot provided by India and COVAX, also said it has no stocks and more than 1.55 million people were waiting for their second dose.
"People above 65 and others in risk groups who received their first shots of the Indian vaccine are waiting for their second," Jhalak Gautam, head of the vaccine section of the Ministry of Health and Population, told Reuters.
"It's already overdue," he said, adding the SII had yet to deliver one million shots that Nepal bought.
The SII said on Tuesday it hoped to start supplying COVAX and delivering to other countries by the end of the year.
Nepal had asked Indian authorities for early delivery of more shots, said Sewa Lamal, a spokesman for Nepal's Ministry of Foreign Affairs.
"Despite their own problems, we hope India can consider emergency requirements," she told Reuters.
India's foreign ministry did not comment on Nepal's request.
The head of the U.N. children's fund, which is helping supply COVID-19 vaccines through COVAX, on Monday asked G7 countries to donate supplies to COVAX as an emergency measure to address the severe shortfall caused by disruption to India's exports.
"There's a lot of back-door diplomacy happening to get extra doses from USA, EU and other 'rich countries to make up for the backlog created by India," a source at UNICEF told Reuters.
The source said a lot of efforts were underway to resolve the supply disruptions and it could be too early to gauge the long-term impact of India's export curbs.
But the short-term impact of the reduced supply was already pronounced. UNICEF said this week that COVAX would deliver its 65 millionth vaccine dose this week, far behind its original target of 170 million. (Reuters)
May
Australian PM says trade volume shows valuable China relationship
Written by Nur Yasmin
Australian Prime Minister Scott Morrison has pointed to strong trade with China as evidence of a valuable relationship despite Chinese criticism, as Australia's main opposition party accused him of using alarmist rhetoric for domestic gains.
Bilateral ties have sunk to their lowest point in decades, and China has in recent months moved to restrict imports of Australian products such as barley, wine and beef after Morrison led calls for a global inquiry into the origins of COVID-19.
But Morrison said sales of other commodities illustrated the relationship had not broken down.
"The relationship still exists, look at trade alone – there have never been bigger volumes. That's a bit of a proof point. When all's said and done, there's still great value in the relationship," Morrison told the Sydney Morning Herald newspaper in an interview.
China is Australia's largest trading partner. In the 12 months to March, Australia exported A$149 billion ($116 billion) worth of goods to China, down 0.6% from the previous year. Exports, however, have been supported by strong prices for iron ore, the largest single item in trade with China.
China's foreign ministry spokesman Zhao Lijian responded by saying that China "has always held that health and stable China-Australia relations are in the fundamental interests of both countries".
However, Zhao, speaking at a regular news briefing in Beijing, said the responsibility for the decline in relations was not "not at all China's" and that Australia should treat China with "objectivity" and "rationality".
Morrison's comments came as Labor Shadow Foreign Affairs Minister Penny Wong accused him of indulging in political opportunism in foreign affairs.
"My concern is that not only does he not fully comprehend Australia's interests in relation to China, he doesn't even seek to," she said at a book launch on Wednesday.
"It's always about the domestic political advantage."
Labor has previously largely backed the government's more assertive stance towards Beijing, but recent warnings from government officials raising the possibility of a conflict with China have weakened that unity.
"The first job of national leaders is the safety of their citizens. Our leaders do not make us safe by beating the drums of war with China," Wong said.
Some academics have also called for a change to Australia's 2018 foreign interference laws, which then Prime Minister Malcolm Turnbull said was aimed squarely at China, as well as new powers to cancel agreements struck between Australian states and foreign governments.
The government in April used the 2020 legislation to cancel an agreement between Victoria state and China linked to its grand infrastructure plan called the Belt and Road Initiative.
China Matters, a Sydney-based think tank that has been critical of policy towards China, said the laws were too broad and should be narrowed when a parliamentary committee examines the legislation later this year. (Reuters)
May
Taiwan raises COVID alert islandwide, but gets vaccine boost
Written by Nur Yasmin
Taiwan has reported more than 1,000 new infections during the past week or so, leading to new curbs in the capital, Taipei, and shocking a population that had become accustomed to life carrying on almost normally.
Announcing another 267 local infections, up from 240 on Tuesday, Health Minister Chen Shih-Chung said that although the across Taiwan.
There was no need to order a full lockdown for now, and people should not worry too much, he added.
"At present medical capacity is sufficient, so please don't worry," Chen added.
The new curbs for Taiwan restrict personal gatherings and close entertainment venues, steps already in effect in Taipei since the weekend.
In a boost for Taiwan's fight against the pandemic, Chen said more than 410,000 vaccine doses from COVAX would arrive Wednesday afternoon, which he described as "very valuable" and would be prioritized for front-line health care workers.
It has only received a little more than 300,000 doses to date, all from AstraZeneca. More than two-thirds of those have been distributed.
Taiwan has said it expected to get more than 1 million AstraZeneca shots via COVAX in total.
Taiwan has ordered 20 million doses, mostly from AstraZeneca but also from Moderna Inc, though global shortages have curtailed supplies.
In a statement on Wednesday, Taiwan's Centres for Disease Control said after a virtual workshop on vaccines on Tuesday with the top U.S., British, Japanese, and Australian diplomats in Taipei that vaccines must be fairly distributed.
"Fair access to effective vaccines is the ultimate means to curb the global COVID-19 pandemic. We look forward to more effective and sufficient vaccine development and marketing, and call on all countries to work together to end the COVID-19 pandemic," it said.
Taiwan is mobilizing its diplomats to try to speed up access to more vaccines and is in talks with the United States for a share of the COVID-19 shots President Joe Biden plans to send abroad.
Brent Christensen, the de facto U.S. ambassador to Taiwan, said at the same event that "talking about COVID-19 vaccines can be a sensitive subject", according to a copy of his remarks published by his office.
"We recognize that each country and region is at different stages in their COVID-19 vaccination programs," the remarks said. "Unfortunately, many still face difficulties gaining access to vaccines."
Taiwan has reported 2,533 cases since the pandemic began, including 14 deaths. (Reuters)
May
APEC should bolster cooperation to secure vaccine supply lines: report
Written by Nur Yasmin
After over a year into the pandemic, APEC members should accelerate trade policy measures and intensify cooperation to tackle the ongoing crisis by securing vaccine supply lines, APEC Policy Support Unit's latest policy brief stated.
The policy brief highlighted that the trade policy can facilitate the distribution of COVID-19 vaccines deemed the key to battling the pandemic, according to a release issued by the Policy Support Unit and received here on Wednesday.
The report also states that APEC member economies should seize the opportunity to pursue initiatives to reduce or eliminate tariffs on vaccines and related goods and refrain from implementing export restrictions and prohibitions affecting those goods.
While the average tariff on vaccines is very low within APEC, at only 0.8 percent, tariffs are much higher for several goods that are crucial in the vaccine supply chain.
Essential products, such as alcohol solutions, freezing equipment, packaging and storage materials, as well as vials and rubber stoppers face higher average tariff rates at above five percent.
Moreover, some import tariffs are very onerous, reaching as much as 30 percent and above for specific products in certain APEC economies.
The policy brief recommends that member economies facilitate trade in vaccines and related supplies and equipment by securing open supply lines and preventing unexpected events from affecting the delivery of any goods in the vaccine supply chain.
"APEC economies are collectively responsible for majority of the world’s COVID-19 vaccine production," Carlos Kuriyama, senior analyst of the APEC Policy Support Unit and author of the policy brief, stated.
"However, since vaccine production relies on a specialized network with multiple inputs originating from across the APEC region and the rest of the world, this further underscores the importance of ensuring that global supply chains are functional and resilient," Kuriyama remarked.
The report shows that since the emergence of the pandemic, several APEC economies have implemented measures to facilitate the trade of medical products, including reducing or eliminating import tariffs on a temporary basis as well as exempting those imported products from value-added taxes and income taxes.
While those measures could help facilitate access to vaccines on a temporary basis, the policy brief proposes a better outcome can be obtained by making those measures long-lasting.
In parallel, the policy brief recommends strengthening cooperation at all levels, for instance, by applying policies pertaining to intellectual property to promote technology transfer and facilitate vaccine production, as well as measures to mutually recognize good manufacturing practices to ensure that the quality assurance for vaccines produced in one economy is valid for other economies as well.
"APEC economies need to take not just individual but also collective actions during this emergency to fight this pandemic," Rebecca Sta Maria, executive director of the APEC Secretariat, stated.
"The current situation is unprecedented, and there is a sense of urgency to look beyond business-as-usual considerations to propose effective measures to stop this pandemic," she stated.
APEC trade ministers will convene virtually in early June under New Zealand’s leadership to set the region’s response to COVID-19, including policies and measures regarding vaccine supply chains.
"Free and open trade will help quickly ramp up COVID-19 vaccine production and at the same time tackle supply chain challenges," Kuriyama stated.
If vaccines or important related goods are unaffordable or unavailable due to tariffs, export restrictions, or delays in transit, he stated that additional vaccine production may be for naught.
"On account of the urgency of the pandemic, bold and concerted actions are required across the vaccine supply chain to facilitate vaccinations and to put an end to the pandemic," he affirmed. (Antaranews)
May
South Korea's Moon seeks urgency on N.Korea, vaccine deal at Biden summit
Written by Nur Yasmin
South Korean President Moon Jae-in is hoping to use his first summit with U.S. President Joe Biden this week to revive long-stalled talks with North Korea and urge the White House to embrace the issue with more urgency.
South Korean officials say they were heartened by the new administration's recent policy review, which called for a focus on practical diplomatic steps to reduce tensions while maintaining the final goal of removing North Korea's nuclear weapons. read more
But amid the global coronavirus pandemic, domestic economic and political challenges, and foreign policy crises elsewhere, the Biden administration has not signalled North Korea is a top priority, potentially complicating Moon's hopes of cementing his legacy.
Moon is scheduled to arrive in Washington on Thursday for a four-day stay, which will include a series of summits with Biden and meetings with Vice U.S. President Kamala Harris and congressional leaders.
One senior Seoul official said the Biden administration's overtures to North Korea were a "good sign" that could lay the groundwork for a resumption of talks.
"We believe there could be a serious attempt at reopening dialogue and both sides could actually sit face to face at some point," the official told Reuters on condition of anonymity, citing diplomatic sensitivity.
"We of course hope it will happen sooner than later, and do what we can to facilitate that."
U.S. Secretary of State Antony Blinken has said Washington is open to diplomacy but it was "up to North Korea to decide whether it wants to engage" by taking action toward denuclearisation. read more
Denuclearisation talks between Pyongyang and Washington have been on hold since the failed second summit in 2019 between leader Kim Jong Un, and Biden's predecessor, Donald Trump. That led to souring inter-Korean relations as Moon had offered to play a mediator role.
Pyongyang officials consistently criticise and ridicule Moon and his government, and last year North Korea blew up a cross-border liaison office built on its territory, though it has not tested nuclear weapons or long-range missiles since 2017.
Moon has said he will treat his final year in office as the last chance to achieve lasting peace with North Korea, and is seeking to explore ways with Biden to restart nuclear negotiations, Seoul officials said. read more
Biden's administration has not shown a willingness to ease sanctions, while making diplomatic overtures that Washington says have been rebuffed by Pyongyang. The North has long demanded sanctions relief, an issue that has also hampered Moon's efforts to kick-start inter-Korean economic and tourism projects. read more
Biden has yet to appoint a special envoy to handle nuclear negotiations, and signalled a hard line on North Korea's human rights. read more
But South Korean officials have seized on the policy review as a reason for optimism.
"The United States has said it would pursue a diplomatic solution and bilateral dialogue, and was ready to offer concessions if North Korea takes meaningful steps, which is a very practical and flexible approach," a senior presidential official told reporters on Tuesday.
Moon's efforts at salvaging inter-Korean ties could be overshadowed by mounting calls on him to secure more and faster deliveries of U.S.-made coronavirus vaccines amid supply shortages and shipment delays. read more
With the slowing inoculation drive further denting his popularity, Moon promised on Monday to secure a vaccine partnership at the summit by harnessing South Korea's biotech production capacity.
"Moon's administration could've thought of this summit as a chance to jointly devise concrete steps to flesh out the (U.S.-North Korea) policy framework from the review, but there are too many issues that require a more immediate focus for both sides, including vaccine and economic cooperation," said Kim Hong-kyun, a former South Korean chief nuclear negotiator. (Reuters)
May
Japan’s economy slumps back into decline as COVID-19 hits spending
Written by Nur Yasmin
Japan’s economy shrank more than expected in the first quarter as a slow vaccine rollout and new COVID-19 infections hit spending on items such as dining out and clothes, raising concerns the country will lag others emerging from the pandemic.
Capital expenditure also fell unexpectedly and export growth slowed sharply, a sign the world's third-largest economy is struggling for drivers to pull it out of the doldrums.
The dismal reading and extended state of emergency curbs have heightened the risk Japan may shrink again in the current quarter and slide back to recession, defined as two straight quarters of recession, some analysts say.
"Global chip shortages caused a marked slowdown in exports, putting a drag on capital spending as well," said Yoshimasa Maruyama, chief market economist at SMBC Nikko Securities.
"Consumption will probably remain stagnant, raising risks of an economic contraction in the current quarter."
The economy shrank an annualised 5.1% in the first quarter, more than the forecast 4.6% contraction and following an 11.6% jump in the previous quarter, government data showed on Tuesday.
The decline was mainly due to a 1.4% drop in private consumption as state of emergency curbs to combat the pandemic hit spending for clothing and dining out.
But the bigger-than-expected contraction also reflected a surprise 1.4% drop in capital expenditure, which confounded market expectations for a 1.1% increase as companies scaled back spending on equipment for machinery and cars.
While exports grew 2.3% thanks to a rebound in global demand for cars and electronics, the pace of increase slowed sharply from the previous quarter's 11.7% gain, a worrying sign for an economy still reeling from weak domestic demand.
Domestic demand knocked 1.1% point off gross domestic product (GDP), while net exports shaved off 0.2 point, the data showed.
"That domestic demand is weak shows the adverse effects from the coronavirus haven't been shaken off at all," said Takeshi Minami, chief economist at Norinchukin Research Institute.
Despite massive monetary and fiscal stimulus, Japan's economy slumped a record 4.6% in the fiscal year that ended in March, the data showed.
"There will undoubtedly be fiscal money poured on this problem to soften the blow, though after so much already, it is difficult to see this having more than a fairly marginal effect," analysts at ING wrote in a research note, adding they expect the economy to shrink again in the current quarter.
"And the Bank of Japan seems to be out of fresh policy stimulus ideas currently, so we don't anticipate anything new from them apart from extending existing measures."
Economy Minister Yasutoshi Nishimura blamed the weak GDP reading mainly on the curbs to combat the pandemic, adding the economy still had “potential” to recover.
“It’s true service spending will likely remain under pressure in April-June. But exports and output will benefit from a recovery in overseas growth,” he told reporters.
Japan's economy expanded for two straight quarters after its worst postwar slump in April-June last year due to the initial hit from the pandemic.
The export-driven recovery came to a standstill as consumption took a hit from a spike in new virus strains that forced the government to re-impose curbs just 10 weeks before the Tokyo Olympic Games. (Reuters)