After contracting for two straight quarters, Japan's economy unexpectedly entered a recession, primarily as a result of low domestic demand. This has delayed expectations for when the Bank of Japan might end its negative interest rate policy and surprised economists who were expecting growth.
In the final quarter of 2023, the GDP shrank at an annual rate of 0.4%, after declining 3.3% in the previous quarter. Spending reductions by both companies and households caused Japan to fall out of third place in the world economy.The Bank of Japan's intentions to raise interest rates for the first time since 2007 are complicated by this less successful than anticipated performance. The recession throws a wrench in the central bank's plans to end its negative rate policy, which it has been discussing.
In the upcoming months, there is a risk that the yen's reversal to levels not seen since November will increase cost-push inflationary pressure. Japan's yen saw minimal movement in relation to the US dollar following Thursday's data, trading at 150.40.
Growth was boosted by net exports by 0.2 percentage points. December saw a spike in exports, driven mostly by cars going to the US and equipment for making chips going to China. As a subset of service exports, inbound tourism also continued to grow, with December seeing a record number of visitors.
Looking ahead, given that growth is predicted to slow down in some of Japan's major trading partners in 2024, external demand may become a less dependable source of support for growth.
Source: https://www.bloomberg.com/news/articles/2024-02-14/japan-s-economy-slips-into-recession-clouding-boj-s-policy-path
6 comments:
It is very interesting to see the decline of Japan as one of the leading global economies. The article I read talked about a recession that just began in Britain, however there are some indicators that it could be short-lived so it may be the same case for Japan.
Interesting to see how their economy is working with their long famed history of business. Private consumption falling is never a good thing, and I wonder what they'll do about these negative interests rates in the coming future.
Increasing living costs and a lack of wage increases tights household spending, which is a challenge for the central bank. A slowdown in major trading partners may reduce the reliability of external demand, which is a driver of growth.
First Japan, then the UK. Hopefully not the start of a recessionary trend amoung developed economies.
What were the primary factors that led to Japan's unexpected entry into a recession, and how did it impact the country's standing in the global economy?
Surely Japan will not be the last economy to go into a recession of this nature, who knows, maybe the USA is next.
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