Japan’s economy witnessed an unexpected slip and has lost its spot as the world’s third-biggest economy to Germany. According to the Cabinet Office report released on Thursday, the Asian giant has slipped into recession after shrinking for a second quarter due to anemic domestic demand.
GDP of Japan and Germany
In 2023, Japan’s economy grew 1.1 percent in normal terms but in dollar terms, its Gross Domestic Product (GDP) was lower than Germany’s, it stood at $ 4.2 tn while Germany’s GDP was $ 4.5 tn. For the whole 2023, Japan’s nominal GDP grew 5.7 percent on the other hand, Germany’s nominal GDP grew 6.3 percent.
As per the report, the GDP of Japan contracted at an annualized pace of 0.4 percent in the last three months of 2023. It also revealed that as the economy of Japan declined, both households and businesses cut spending for the third straight quarter.
Japan reported two consecutive quarters of contraction. Falling 3.3 percent contraction in the third quarter and 0.4 percent on an annual basis in the fourth quarter. On a quarter-on-quarter basis, GDP slipped 0.1 percent compared with a 0.3 percent rise expected in Reuter polls of economists.
Factors Responsible for Japan’s Recession
The weaker-than-expected result will complicate the Bank of Japan’s case to conduct the first rate hike in Japan since 2007. As per result, market pricing in around 63 percent of BOJ hiking by April, witnessed a fall from 73 percent an earlier day.
“I think there was a feeling that the BOJ will end the negative rate in March or April, but a north wind is now blowing,” Takeshi Minami economist at Norinchukin Research said.
In response to the latest report, the benchmark Nikkei 225 rose by 0.65 percent and briefly surpassed the 38,000 mark in the morning session. The yen continued to hover around the 150 mark against the dollar.
“The GDP contraction for the third quarter weakens the conviction around whether inflation is driven by a virtuous cycle of increased real income and spending,” Charu Chanana, head of FX strategy at Saxo Markets, said. He added that this terrible growth picture makes it difficult for BOJ to tighten its policy.
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