Japan's economy unexpectedly falls into technical recession

The Japanese government announced on February 15 that the country's economy unexpectedly fell into recession in the final quarter of last year due to weak domestic demand. The news was announced at the same time as Japan confirmed that it would lose its position as the world's third-largest economy to Germany in 2023.

People's tendency to save money is increasing due to inflation. Photo: Nikkei Asia

Japan, Asia's second-largest economy, shrank an annualized 0.4% in the October-December quarter from the previous three months, following a revised 3.3% contraction in the July-September period. Two consecutive quarters of contraction mean the economy is in a technical recession, posing a challenge for the government and the Bank of Japan (BOJ) as they seek to achieve growth through rising domestic demand coupled with rising wages.

Private consumption fell 0.9% year-on-year in the fourth quarter, while business investment fell 0.3%. Exports rose 11%, while imports rose 7%. Personal consumption, which accounts for more than half of the economy, fell 0.2%, marking the third straight quarterly decline, as households struggled with rising living costs and falling real wages.

The Nikkei Asia newspaper quoted Yoshiki Shinke, an expert at Dai-ichi Life Research Institute, as saying that the figures were generally a “negative surprise,” and that the situation is expected to deteriorate further from January to March 2024 due to falling exports, which could mean the economy will shrink for a third consecutive quarter.

Analysts predict that by the time real wages start to recover, demand will be weak and the BOJ will still move to end its negative interest rate policy this spring, as financial markets expect. However, economist Yoshiki Shinke remains skeptical about whether the economy will be strong enough to continue raising interest rates repeatedly after that.

Speaking at a press conference, Minister in charge of economic recovery Yoshitaka Shindo emphasized that Japan's being surpassed by Germany shows that the country needs to promote structural reform and create a new stage for growth.

CHI HANH

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