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Japan Economy Slips Into Recession, Germany Claims No. 3 Economy

Japan economy slips into recession at the end of last year, relinquishing its position as Germany's third-largest economy globally and casting doubt on when the central bank would start withdrawing its ultra-loose monetary policy of a decade.

Author:Suleman Shah
Reviewer:Han Ju
Feb 16, 2024
59.3K Shares
802.3K Views
Japan economy slips into recessionat the end of last year, relinquishing its position as Germany's third-largest economy globally and casting doubt on when the central bank would start withdrawing its ultra-loose monetary policy of a decade.
The sluggish consumption and production halts at a division of Toyota Motor Corp (7203.T), which opens a new tab, feeble demand in China, and sluggish consumption collectively indicate a difficult path to economic recovery, prompting some analysts to forecast another contraction in the current quarter.

Japan Loses Third-Largest Economy Spot

People walking past a busy crossing in Tokyo, Japan on November 15, 2023
People walking past a busy crossing in Tokyo, Japan on November 15, 2023
Japan's economy has unexpectedly contracted, leading the nation into a recession and causing it to slip from its position as the world's third-largest economy to be overtaken by Germany. The latest data from the Cabinet Officereveals that the Gross Domestic Product (GDP) shrank at an annualized rate of 0.4% in the final quarter of 2023, following a contraction of 3.3% in the preceding quarter.
This decline in economic performance has caught analysts off guard, as market expectations were for GDP to grow by an annualized 1.4% quarter-on-quarter during the October to December period. The data confirms that Japan's economy, in termsof US dollars, ranked fourth globally in the previous year, trailing behind Germany.
The primary driver of the economic downturn was weakened domestic demand, with all major categories, including consumer spending, recording negative figures. Only external demand, primarily fueled by exports of goods and services, managed to contribute positively. Private consumption, which constitutes half of the economy, fell by an annualized 0.9% in the fourth quarter, marking the third consecutive quarter of decline.
A significant factor contributing to the decline in private consumption is the rising cost of living for Japanese consumers. The weak yen, which has depreciated by 6.6% against the US dollar since the beginning of the year, has led to higher prices for essential commodities such as food and fuel.
Neil Newman, a Tokyo-based strategist at Japanmacro, pointed out that Japan's dependence on imports for 94% of its base energy requirements and 63% of its food exacerbates the impact of the weak yen.
Furthermore, a seismic event in the form of the Sea of Japan earthquake on January 1 has added to the economic challenges. Neil Newman anticipates a further decline in consumer spending due to the aftermath of the natural disaster.
Despite falling into a technical recession, Japan's financial markets have remained resilient. The benchmark Nikkei 225 index has even experienced a 1.2% gain, closing above the 38,000 level for the first time since 1990.
Economists, however, expressed optimism about a potential economic recovery in the coming months. Min Joo Kang, a senior economist at ING Group, expects a rebound in GDP in the first quarter of 2024, citing stabilization in inflation, anticipated wage growth, and positive corporate earnings. Analysts at Capital Economics also point to business surveys and a robust labor market as indicators of a more positive business environment than the headline GDP figures suggest.
The unemployment rate in December reached an eleven-month low of 2.4%, and the Bank of Japan's Tankan survey highlighted the strongest business conditions across all industries and firm sizes since the fourth quarter of 2018.
Notably, Japan's equities market had a remarkable performance in 2023, with the Nikkei index surging by 28%, making it the best-performing market in Asia. Despite the economic challenges, analysts from Morgan Stanley reiterated their bullish view on Japan's equities, designating it as the largest overweight recommendation in their coverage universe.
The ongoing corporate reforms and improvements in return on equities, coupled with the depreciation of the yen benefiting Japanese exporters, have been identified as key factors driving the rally in Japan's equities, according to analysts from Eastspring Investments.

Final Thoughts

Japan's economy has entered a recession, contracting for two consecutive quarters due to sluggish domestic demand, according to recent data. The unexpected downturn has resulted in Japan conceding its position as the world's third-largest economy to Germany.
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Suleman Shah

Suleman Shah

Author
Suleman Shah is a researcher and freelance writer. As a researcher, he has worked with MNS University of Agriculture, Multan (Pakistan) and Texas A & M University (USA). He regularly writes science articles and blogs for science news website immersse.com and open access publishers OA Publishing London and Scientific Times. He loves to keep himself updated on scientific developments and convert these developments into everyday language to update the readers about the developments in the scientific era. His primary research focus is Plant sciences, and he contributed to this field by publishing his research in scientific journals and presenting his work at many Conferences. Shah graduated from the University of Agriculture Faisalabad (Pakistan) and started his professional carrier with Jaffer Agro Services and later with the Agriculture Department of the Government of Pakistan. His research interest compelled and attracted him to proceed with his carrier in Plant sciences research. So, he started his Ph.D. in Soil Science at MNS University of Agriculture Multan (Pakistan). Later, he started working as a visiting scholar with Texas A&M University (USA). Shah’s experience with big Open Excess publishers like Springers, Frontiers, MDPI, etc., testified to his belief in Open Access as a barrier-removing mechanism between researchers and the readers of their research. Shah believes that Open Access is revolutionizing the publication process and benefitting research in all fields.
Han Ju

Han Ju

Reviewer
Hello! I'm Han Ju, the heart behind World Wide Journals. My life is a unique tapestry woven from the threads of news, spirituality, and science, enriched by melodies from my guitar. Raised amidst tales of the ancient and the arcane, I developed a keen eye for the stories that truly matter. Through my work, I seek to bridge the seen with the unseen, marrying the rigor of science with the depth of spirituality. Each article at World Wide Journals is a piece of this ongoing quest, blending analysis with personal reflection. Whether exploring quantum frontiers or strumming chords under the stars, my aim is to inspire and provoke thought, inviting you into a world where every discovery is a note in the grand symphony of existence. Welcome aboard this journey of insight and exploration, where curiosity leads and music guides.
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