Finance & Economics

Japan Manages to Avoid Recession

The Japanese economy in the last quarter of 2023 showed a positive result, which exceeded the preliminary forecasts of analysts.

Japan Manages to Avoid Recession

On Monday, March 11, revised data from the government of the mentioned country were published, according to which the local economic system grew by 0.4% over the period from October to December past year compared to the last three months of 2022. This result turned out to be significantly better than the expectations of analysts who predicted a decline of 0.4%.

The revised gross domestic product (GDP) of Japan, published by the Cabinet Office, coincided with the forecast of economists surveyed by the media, providing for an increase in the corresponding indicator by 1.1%.

The data that appeared in the public information space on Monday indicates that Tokyo has managed to avoid a technical recession. The media notes that this result is largely because local companies have increased spending on factories and equipment beyond expectations.

Currently, the Japanese economic system is the fourth in the world. The GDP of the Asian country in quarterly terms showed growth of 0.1% compared to the initial figure of a decrease of 0.1%.

Capital expenditures in Japan increased by 2% from October to December 2023 in comparison to the result for the previous three-month period. In this case, it is worth mentioning the initial decrease of the specified indicator by 0.1%. At the same time, the result for the fourth quarter of last year is lower than the market consensus forecast for growth of 2.5%.

The upward revision occurred at a time when market expectations are increasing that the Bank of Japan will abandon negative interest rates in March. The corresponding sentiment is largely related to the so-called hawkish comments by members of the central bank’s board that the country’s economy is moving towards the inflation target of 2%. The financial regulator plans to hold a two-day meeting on its policy on March 18 and 19.

It is worth noting that private consumption in Japan, whose share in the structure of the local economic system is about 60%, decreased by 0.3% in the fourth quarter of last year. This indicator is worse than the decline of 0.2% in the initial estimate. In the fourth quarter of last year, seafood and household appliances had a significant impact on price reductions in this category. This was reported by the media, referring to a representative of the Cabinet Office.

Last week it became known that in January in Japan, real wages, adjusted for inflation, showed a decrease. It is worth noting that the corresponding dynamic of the mentioned indicator is fixed for the 22nd month in a row. At the same time, in January, household spending in Japan showed the largest drop in the last 35 months. The contribution of external demand to Japan’s real GDP was 0.2%. This indicator has not changed compared to the preliminary reading.

Saisuke Sakai, the senior economist at Mizuho Research and Technologies, says that the growth forecast has been revised upward, but domestic demand continues to be weak, which is especially true for the sphere of consumption. The expert warns that in the first quarter of the current year, the Japanese economy may face a contraction. According to Saisuke Sakai, the corresponding prospect arose against the background of such impact factors as the slowdown in economic dynamics in China, the stoppage of production in one of Toyota’s units, and weak consumption.

Marcel Thieliant, head of Asia-Pacific at Capital Economics, argues that the Bank of Japan is more likely to abandon negative interest rates by April. According to the expert, the financial regulator will justify the relevant decision by strengthening the prospect of a significant salary increase. Marcel Tiliant says that the Bank of Japan is paying more attention to its own consumption activity index and probably does not perceive the slowdown in corresponding activeness recorded by other organizations within the public administration system as a cause for concern.

Japan’s largest trade union confederation Rengo has demanded a 5.85% pay increase this year. For the first time in 30 years, the mentioned figure’s expected growth rate exceeded the 5% mark. Japan’s financial regulator has been saying for a long period that steady wage growth was a prerequisite for rolling back more than a decade of radical monetary experimentation.

As we have reported earlier, Bank of Japan Governor Signals Chance of Policy Shift.

Serhii Mikhailov

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Serhii’s track record of study and work spans six years at the Faculty of Philology and eight years in the media, during which he has developed a deep understanding of various aspects of the industry and honed his writing skills; his areas of expertise include fintech, payments, cryptocurrency, and financial services, and he is constantly keeping a close eye on the latest developments and innovations in these fields, as he believes that they will have a significant impact on the future direction of the economy as a whole.