Japan unexpectedly slid into recession at the end of last year and lost its position as the world’s third-largest economy to Germany, raising doubts about when the central bank will begin to abandon a decade of ultra-loose monetary policy.
The yen fell
The yen fell by more than 18% in 2022 and 2023 against the dollar, and by about 7% last year only, in part because the Japanese central bank, unlike its other major counterparts in the world, maintained negative interest rates.
Negative interest means that depositors do not receive interest from depositing their money, but on the contrary, they pay a percentage of it in exchange for keeping it in banks.
Currencies decline with the reduction in interest rates in the country issuing them (accommodative monetary policy), as they lose demand for the debt securities they issue (bonds and treasury bills). This decline is increased by interest increases in other economies, as is the case in the case of Japan versus its American and European counterparts and other economies. Grand.
Japanese government data showed that the nominal GDP for 2023 reached $4.2 trillion, compared to $4.5 trillion for Germany, according to figures revealed last month.
Possible new contraction
Analysts warn of another contraction in the current quarter with weak demand in China, a slowdown in consumption, and a halt in production at a Toyota Motor unit, while all of this indicates a challenging path towards economic recovery and policy making.
Dai-ichi Research Institute chief executive economist Yoshiki Shinki said that what was particularly striking was the slowdown in consumption and capital spending, which are the main pillars of domestic demand.
Schenke added that the economy will still lack momentum for the time being, with no major drivers of growth.
Government data showed today that Japan’s gross domestic product fell by 0.4% on an annual basis in the quarter from October to December after a decline of 3.3% in the previous quarter, which contradicted market expectations for a 1.4% increase.
Contraction for two consecutive quarters is usually considered the definition of a technical recession.
Private consumption
Japanese Economy Minister Yoshitaka Shindo stressed the need to achieve strong wage growth to support consumption, which he described as “lacking momentum” due to rising prices.
Private consumption, which accounts for more than half of economic activity, fell by 0.2% versus market expectations for a 0.1% increase, as higher costs of living and warm weather made families reluctant to eat out and buy winter clothes.
Capital spending, another key driver of private sector growth, fell by 0.1% compared to expectations for a 0.3% increase.
Consumption and capital spending contracted for the third consecutive quarter.
