Japan has found itself plunged into an economic recession, sending shockwaves through global financial markets and raising concerns about the resilience of one of the world’s largest economies. The announcement came today following the release of official data indicating a second consecutive quarter of negative economic growth.

The country’s gross domestic product (GDP) contracted by a worse-than-expected 0.4% in the last three months of 2023, compared to a year earlier.

It came after the economy shrank by 3.3% in the previous quarter.

The Japanese government confirmed the grim news, citing a decline in consumer spending, subdued business investment, and ongoing challenges exacerbated by the persistent COVID-19 pandemic. The downturn underscores the fragility of Japan’s economic recovery efforts and poses significant challenges for policymakers grappling with a myriad of domestic and international pressures.

Economists had cautiously anticipated a modest recovery in the wake of previous stimulus measures and efforts to contain the virus. However, the latest figures have dashed hopes of a swift rebound, with the Japanese economy contracting by an unexpected 1.2% in the fourth quarter of last year, following a 0.8% contraction in the third quarter.

Economist Neil Newman told that the latest figures show that Japan’s economy was worth about $4.2tn (£3.3tn) in 2023, while Germany’s was $4.4tn.

The pandemic continues to wreak havoc on key sectors of the economy, including tourism, hospitality, and manufacturing, further deepening the country’s economic woes. The government’s efforts to strike a delicate balance between safeguarding public health and reviving economic activity have faced mounting challenges amidst a surge in COVID-19 infections and the emergence of new variants.

Prime Minister Shinzo Abe expressed his deep concern over the economic downturn, vowing to implement bold measures to mitigate the impact on businesses and households. “We recognize the severity of the current economic situation and are committed to taking decisive action to support businesses, protect jobs, and stimulate growth,” he stated in a press conference earlier today.

The news of Japan’s recession has reverberated across global financial markets, triggering a sell-off in Asian equities and causing the yen to weaken against major currencies. Analysts warn that the resurgence of economic uncertainty could further dampen investor confidence and undermine efforts to foster a sustained recovery.

The Bank of Japan, which has maintained an accommodative monetary policy stance to support the economy, signaled its readiness to deploy additional measures if necessary. “We stand ready to provide ample liquidity and support financial stability to ensure the smooth functioning of markets and facilitate the flow of credit to businesses and households,” Governor Haruhiko Kuroda affirmed.

As Japan grapples with the daunting task of navigating its way out of recession, policymakers face mounting pressure to implement effective strategies to reignite growth and restore confidence in the economy. The coming months will be critical in determining the trajectory of Japan’s economic recovery and its ability to overcome the formidable challenges that lie ahead.

Published: 15th Feb 2024

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