Japan Slips to Fourth-Largest Economy Amid Recession
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By The Smartencyclopedia Staff  & Agencies 

Japan, once the world’s second-largest economy, has lost its position as the third-largest to Germany as it unexpectedly slipped into a recession. The country reported two consecutive quarters of contraction on Thursday, with a 0.4% annualized contraction in the fourth quarter, following a revised 3.3% contraction in the third quarter. This downturn has caused Japan to fall behind Germany in the global economic ranking.

The fourth-quarter GDP figure fell well short of expectations, missing forecasts for 1.4% growth in a Reuters poll of economists. A recession is generally defined as two consecutive quarters of economic contraction. On a quarter-on-quarter basis, Japan’s GDP slipped by 0.1%, contrasting with the 0.3% rise expected in the Reuters poll.

For the entirety of 2023, Japan’s nominal GDP grew by 5.7%, reaching 591.48 trillion yen, or $4.2 trillion based on the average exchange rate in 2023. Meanwhile, Germany experienced a 6.3% growth in nominal GDP, reaching 4.12 trillion euros, or $4.46 trillion based on last year’s average exchange rate. Nominal GDP measures the value of output in current dollars without adjusting for inflation.

Following the release of the GDP data, the benchmark Nikkei 225 rose by 0.65%, briefly surpassing the 38,000 mark in the morning session. Investors interpreted the weak economic reading as a signal that the Bank of Japan might delay its exit from the country’s long-standing negative interest rate policy.

The yen continued to hover around the 150 mark against the dollar, trading at 150.2 as of 1:55 p.m. Tokyo time. Charu Chanana, Head of FX Strategy at Saxo Markets, commented on the dire growth picture, stating that it makes it even more challenging for the Bank of Japan to tighten policy. The contraction in GDP for the third quarter, according to Chanana, raises questions about whether inflation is genuinely driven by a virtuous cycle of increased real income and spending.

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