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Japan Slides Into Recession.
Japan has unexpectedly fallen into a recession after its economy shrank for two consecutive quarters. In the last three months of 2023, Japan’s gross domestic product (GDP) contracted by a worse-than-expected 0.4%, compared to the same period a year earlier. This decline followed a 3.3% contraction in the previous quarter.The figures from Japan’s Cabinet Office also reveal that the country has lost its position as the world’s third-largest economy, ceding that spot to Germany. Economists had anticipated that Japan’s GDP would grow by more than 1% in the fourth quarter of last year, but the reality turned out differently.
A technical recession is typically defined as two consecutive quarters of economic contraction, and Japan now finds itself in this situation. The International Monetary Fund (IMF) had previously forecasted that Germany would surpass Japan as the third-largest economy when measured in US dollars. However, the IMF will officially declare this change once both countries publish their final economic growth figures.
The weakness of the Japanese currency against the dollar played a significant role in this shift. The yen fell by about 9% against the US dollar last year, affecting Japan’s economic standing. However, this currency weakness has had a silver lining for some of Japan’s largest companies, as it makes their exports (such as cars) more competitive in overseas markets. Despite the economic challenges, Tokyo’s main stock index, the Nikkei 225, recently crossed the 38,000 marks for the first time since 1990.
The latest GDP data may also impact the Bank of Japan’s decision-making. The central bank introduced a negative interest rate in 2016 to boost spending and investment. Negative rates make the yen less attractive to global investors, which has contributed to the currency’s decline. As Japan grapples with its economic woes, the timing of any further interest rate adjustments remains uncertain.
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