Japan unexpectedly slipped into a recession at the end of 2023, losing its title as the world’s third-biggest economy to Germany.
Japan’s Gross Domestic Product (GDP) fell an annualised 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data showed on Thursday, February 15, 2024, confounding market forecasts for a 1.4% increase.
Two consecutive quarters of contraction are typically considered the definition of a technical recession.
While many analysts still expect the Bank of Japan to phase out its massive monetary stimulus this year, the weak data may cast doubt on its forecast that rising wages will underpin consumption and keep inflation durably around its 2% target.
A senior economist at Moody’s Analytics, Stephan Angrick, said: “Two consecutive declines in GDP and three consecutive declines in domestic demand are bad news, even if revisions may change the final numbers at the margin.
Germany overtakes Japan as third-biggest economy
“This makes it harder for the central bank to justify a rate hike, let alone a series of hikes.”
Economy minister, Yoshitaka Shindo, stressed the need to achieve solid wage growth to underpin consumption, which he described as “lacking momentum” due to rising prices.
“Our understanding is that the BOJ looks comprehensively at various data, including consumption, and risks to the economy in guiding monetary policy,” he told a news conference after the data’s release, when asked about the impact on BOJ policy.
The yen was steady after the data and last stood at 150.22 per dollar, pinned near a three-month low hit earlier in the week, Reuters reports.
Yields on Japanese government bonds fell after the data as some traders pushed back bets of an early BOJ policy shift. The benchmark 10-year yield slid 4 basis points to 0.715%.
The Nikkei stock average rallied to 34-year highs, with the data further underpinning recent reassurances from the BOJ that borrowing costs will stay low even after ending negative rates.
Japan’s nominal GDP stood at $4.21 trillion in 2023, falling below $4.46 trillion for Germany to rank as the world’s fourth-largest economy, the data showed.
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