Japan’s unexpected Economy Recession escape
Japan’s unexpected Economy Recession escape. Japan’s government announced provisional figures last March 2024, showing that the economy had unexpectedly slipped into recession amid sluggish domestic demand and private consumption.
While the revised figures mean that Japan escaped recession – defined as two consecutive quarters of negative growth. The improved figures are likely to boost expectations that the Bank of Japan may end its unconventional policy of negative interest rates, introduced nearly a decade ago.
The economy of Japan has struggled with meager growth throughout several lost decades following the collapse of a massive asset bubble in the early 1990s.
Despite the Japanese economy’s struggles, Tokyo’s stock market is riding high as foreign investors take advantage of the cheap yen and corporate governance reforms that have boosted returns for shareholders.
The benchmark Nikkei 225 index earlier this month smashed the 40,000 mark for the first time, after surpassing its 1989 peak in February.
Japan’s economy expanded by a faster-than-expected annualized 3.1% in April-June, rebounding from the previous quarter thanks to a strong pick up in consumption and backing the case for another near-term interest rate hike.
The Bank of Japan had forecast that a solid economic recovery would help inflation sustainably hit its 2% target, and justify raising interest rates further.
Avoiding Recession
Japan’s economy has narrowly avoided recession, underscoring the economic challenges facing the East Asian giant even as its stock market is cruising at its highest levels in decades.
The revised figure for gross domestic product (GDP) released by Japan’s Cabinet Office compared with economists’ median forecast for a 1.1% uptick in a Reuters poll.
The fresh data meant the economy of Japan, now the world’s fourth-largest behind Germany, avoided a technical recession thanks to companies’ stronger-than-expected spending on plants and equipment.
On a quarter-on-quarter basis, GDP grew 0.1%, compared with the initial 0.1.% drop reading and a median forecast for a 0.3% rise.
Meanwhile, private consumption, which makes up about 60% of Japan’s economy, fell 0.3% from October to December, slightly worse than the 0.2% drop in the initial estimate.
Japan last March saw inflation-adjusted real wages in January shrinking for the 22nd month in a row, while year-on-year household spending in the same month marked the biggest drop in 35 months.
External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading.
Consumers poised for a rebound
Most indicators of consumer spending remain weak, but there is evidence of a turnaround. Real household spending in May was down 1.8% from a year earlier, but this is a considerable improvement from the 6.3% year-over-year decline in January ’24. In May, retail sales growth accelerated. But other measures of consumer spending, such as the real consumer activity index, have yet to show signs of acceleration Nevertheless, consumer fundamentals have changed for the better, which should usher in stronger consumer spending in the coming months. Economy recession japan recession japanese economy japan economy of japan japans economy GDP export. Economy 2024 economy 2023 japan 2024 bank of japan boj tokyo trade news economy explained wc click economic explained. Japanese reuters japan vs china japan economy explained japan economy crisis japan economy news japan economy bubble. Japan economy crash japan yen japan economy miracle japan economy boom.
Meanwhile, rising food and energy prices pose one challenge to consumers. Fuel, light, and water charges were up 6.6% from a year ago in May, reversing a trend of annual declines since February 2023. Food prices were up 4.1% from a year ago and grew at an annualized 5.3% over the prior three months. The recent rebound in these prices has likely weighed on consumer sentiment and discretionary spending: The consumer confidence index fell 3.3 points over the prior two months, and real household spending on culture and recreation declined 9.6% from a year ago.
Exports Tangle
Foreign demand is not limited to tourist services either. Goods exports have accelerated and were up 11.9% from a year earlier in May. A weak yen is part of the reason exports are growing so quickly, but so is the global technology competition. Tellingly, integrated circuits exports were up 32.2% from a year ago in May. Transportation equipment and chemicals also grew at double-digit rates. Such strong demand for Japanese goods and services can also increase inflation as capacity constraints are tested.
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