Japan sinks into recession and loses its position in the global economy

The Japanese economy is in trouble following an unexpected contraction in the last two quarters of 2023.

As a result of this slowdown, Japan would have lost its third place in the world economy.

Japan unexpectedly slips into a recession https://t.co/7YN201ihaO

— BBC News (World) (@BBCWorld) February 15, 2024

The poor performance of the Japanese economy has surprised analysts and cast doubt on Japan’s future expansive monetary policies and the Bank of Japan’s plans to end its monetary policy.

The unexpected contraction of the Japanese economy could prompt central bank officials to reconsider their optimistic GDP forecasts for 2023-2024.

The news is blamed by economists on weakening domestic demand, with all major spending categories, including consumption, recording negative figures. The private consumption sector, representing around half of the Japanese economy, fell for the third consecutive quarter, down 0.9% last quarter, as consumers struggled with rising food and fuel prices.

Japan’s dependence on food and energy imports has put further pressure on the cost of living.

Exports recorded annual growth of 11% in the third quarter, buoyed by the yen’s depreciation. Although this helped boost overall growth, it was not enough to counteract the effects of Japan’s internal recession, leading to a deep recession. Stock market resilience can be attributed in part to corporate reforms and high equity yields, reflecting investor confidence in Japan’s future.

Some specialists anticipate a moderate recovery in the first quarter of 2024.

They anticipate stabilizing inflation, wage growth, robust corporate earnings, and growing demand in the IT sector likely to boost private consumption and capital spending.

Analysts warn that Japan’s economic slowdown may persist due to wage stagnation and job shortages.

Structural challenges such as demographic decline, ageing, and lagging competitiveness and productivity require long-term solutions to ensure sustainable economic growth.