Germany Surpasses Japan Economically Japan Enters Recession

15 Feb, 2024

Germany Surpasses Japan Economically Japan Enters Recession

Government data released on Thursday unveiled Japan's GDP contraction, with a 0.4 per cent decline in the October-December period following a 3.3 per cent drop in the previous quarter. This downturn reflects various challenges including weak demand in China, sluggish consumption, and production halts at Toyota Motor, underscoring hurdles in Japan's economic recovery. Conversely, Germany has ascended to become the world’s third-largest economy, displacing Japan which has slipped into recession by the end of last year. Reuters reports that this shift raises concerns about the timeline for the Bank of Japan’s exit from its prolonged ultra-loose monetary policy.

Analysts warn of a potential further contraction in the current quarter, citing persistent factors like weak demand in China and sluggish consumption. Yoshiki Shinke from Daiichi Life Research Institute emphasizes the lack of momentum in consumption and capital expenditure, crucial drivers of domestic demand, fueling worries about sustained economic growth.

The consecutive quarters of contraction officially mark a recession, challenging expectations for the Bank of Japan's monetary policy adjustments. Economic minister Yoshitaka Shindo underscores the need for robust wage growth to bolster consumption, amid rising prices. The yen remains stable post-data release, while yields on Japanese government bonds decline, reflecting revised expectations for Bank of Japan policy. Despite recent assurances from the Bank of Japan, hurdles to monetary tightening persist, with weak domestic demand hindering policy adjustments.