Japan In The Grips Of a Recession

It’s bad news for the world’s third largest economy as Japan sees negative growth for the second consecutive quarter.
Japan’s recession does not come as a shock. Her economy was expected to shrink following a reduction in size of 0.7 per cent in the second quarter. During the third quarter, it shrunk by 0.8 per cent.

This is the third time that Japan has seen been in a recession since the financial crash of 2008 in spite of a large monetary spending program, adding to fears that their loose central bank policies are succumbing to the law of diminishing returns. The Japanese government is expected to take measures to stimulate their economy however the fiscal policymakers have been very reluctant in responding to weak numbers as Japan’s inflation increases.

However a top economist at Capital Economics, believes that there will be no more easing from the Bank of Japan. “The upshot is that the preferred inflation method, which excludes prices of food and energy should start to moderate soon,” says Marcel Thieliant. “We therefore remain convinced that more stimulus will eventually be needed and now believe that the January meeting is the most likely venue for this announcement.”
In spite of forecasts predicting a 0.4 per cent decrease, business spending fell by 1.3 per cent. Japanese businesses recently reported record highs in their profits however they are reluctant to use that to increase the wages of their employees and reinvest in the economy. This will present a problem for Prime Minister Shinzo Abe.
But there is hope for Japan’s economy as the private sector, accounting for 60 per cent of the economy, rose by 0.5 per cent due to consumer spending picking up after a steady decline after an increase in sales tax last April, a move that helped them into a recession in 2014.
“While there are risks such as overseas developments,” said economics minister Akira Amari, the man tasked with enforcing Prime Minister Shinzo Abe’s ‘Abenomics’ policies. “We expect the economy to head towards a moderate recovery thanks to the effect of various stimulus steps taken so far.”
Despite the growth in consumer spending, early trade in Tokyo showed that the Nikkei 225 index went down by 1.1 per cent. Confidence among business leaders in Asia is at its lowest since 2012 according to a survey run by PriceWaterhouseCoopers. Less than 28 per cent of CEOs in Asia are ‘very confident’ that revenues will increase over the next twelve months, an 18 per cent drop from this time last year. Those that were ‘not very confident’ rose from 8 per cent to 27 per cent.

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