👀 Ones to watch: The MOST undervalued stocks to buy right nowSee Undervalued Stocks

Japan enters technical recession in Q4, muddling BOJ's pivot plans

Published 15/02/2024, 01:14
© Reuters.
USD/JPY
-
JP225
-

Investing.com-- The Japanese economy unexpectedly shrank in the fourth quarter of 2023, entering a technical recession as sticky inflation and a weak yen weighed on private spending, which largely offset improved export demand. 

The reading now complicates the Bank of Japan's plans to begin tightening policy this year, given that worsening growth necessitates stimulus and looser monetary conditions.

Gross domestic product fell 0.1% quarter-on-quarter in the three months to December 31, government data showed on Thursday. The reading was weaker than expectations for a rise of 0.2%, but improved from the 0.8% decline seen in the prior quarter.

Year-on-year, GDP fell 0.2% in the December quarter. Two straight quarters of GDP contraction put the Japanese economy in a technical recession. 

Third quarter GDP figures were also revised a hair lower on Thursday. 

The weaker Q4 reading was driven chiefly by a sustained drop in private consumption, which fell 0.2% q-o-q, missing estimates for growth of 0.1%. The prior quarter’s figure was also revised lower to a drop of 0.3%.

External demand- which represents the net contribution to the GDP from exports, grew 0.2%, weaker than expectations of 0.3% and a mild recovery from the 0.1% contraction seen in the prior quarter.

The sluggish growth comes amid persistent weakness in top export destination China, which is also struggling with weak economic growth. 

Japan’s technical recession presents a challenge to the BOJ’s plans to begin phasing out its ultra-dovish policy this year. Worsening growth is likely to limit the extent to which the BOJ will be able to raise interest rates and tighten monetary conditions. 

While inflation has fallen closer to the BOJ’s 2% annual target range, it has still remained above that level amid persistent price shocks from high import prices and a weak yen. Wage growth has also remained largely stagnant.

The two factors weighed heavily on domestic spending, which is a key driver of the Japanese economy. A decline in spending now appeared to have offset a middling boost from export demand. 

Business spending also remained weak, with capital expenditure down 0.1% q-o-q in the quarter, against expectations for a rise of 0.3%. But the figure improved marginally from a 0.6% drop seen in the prior quarter. 

Inflation slowed more than expected in the quarter, with the GDP price index falling to 3.8% year-on-year, lower than expectations of 4% and the prior quarter’s reading of 5.3%.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers
© 2007-2024 - Fusion Media Limited. All Rights Reserved.