Japan falls into recession as domestic demand falters

Japan falls into recession as domestic demand falters

Japan’s economy shrank for the second consecutive quarter in the final three months of 2023, slipping into a technical recession as weak domestic demand offset a recovery in exports.

People cross a road in Shinjuku, Tokyo, Japan, June 3, 2021. REUTERS/Androniki Christodoulou/File photo

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The unexpected contraction cast doubt on the central bank’s plan to exit its ultra-easy monetary policy later this year.

According to provisional data released on Thursday, Japan’s gross domestic product (GDP) fell 0.4% year-on-year in the fourth quarter of 2023, after a 2.9% decline in the previous quarter. This was much lower than the median forecast of a 1.4% growth by economists surveyed by Reuters. The GDP deflator, a measure of inflation, rose 3.8% on an annualized basis.

 

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On a quarterly basis, Japan’s economy contracted 0.1% in the October-December period, following a 0.4% drop in the July-September period. This also missed the market expectation of a 0.3% expansion.

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Economy

Australia’s S&P/ASX The main drag on the economy was private consumption, which accounts for more than half of Japan’s GDP. Consumer spending fell 0.2% quarter-on-quarter, as households faced higher living costs and stagnant wages. Business investment also declined 0.3%, reflecting uncertainty over the global economic outlook and the impact of the coronavirus pandemic.

 

Japan’s exports, however, rose 2.6% quarter-on-quarter, as the country benefited from a rebound in global trade and a weaker yen. Imports also increased 1.9%, resulting in a positive contribution of net exports to GDP.The disappointing GDP figures raised questions about the Bank of Japan’s (BOJ) intention to start tapering its massive stimulus program, which has kept interest rates at or below zero and flooded the financial system with cash. The BOJ has signaled that it will consider exiting its easing policy sometime in 2024, as it expects inflation to gradually pick up and the economy to return to its pre-pandemic level.

 

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However, some analysts argue that the BOJ may have to delay or revise its exit strategy, given the persistent weakness in domestic demand and the risk of further coronavirus outbreaks. They also point out that Japan’s inflation remains far below the BOJ’s 2% target, despite the surge in the GDP deflator, which mainly reflects higher import prices.

Japan’s economy, which was overtaken by Germany as the world’s third-largest in 2023, is expected to grow modestly in 2024, as the government plans to implement a large-scale fiscal stimulus package and the vaccination program progresses. However, the recovery may be uneven and fragile, depending on the pace of the pandemic and the global economic situation.

Source : REUTERS News

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