In the last quarter of 2023, Japan’s economy contracted by 0.4% annually, following a 3.3% contraction in the third quarter. This technically signifies that Japan has entered a recession. Consecutive contractions have led Japan, the world’s third-largest economy, to fall to fourth place, overtaking Germany.
Contrary to market expectations of a 1.4% expansion in the last quarter, the growth was significantly lower. This sluggish growth is attributed to declines in domestic consumption and investment spending. The decreasing demand from China, a slowdown in consumption, and even a halt in Toyota’s production suggest that this quarter may not be promising either. Continuing with the loose monetary policy, one of the tools available to the Bank of Japan, could challenge their plans.
Known as the only major central bank implementing negative interest rates, the Bank of Japan might return to positive territory later than expected due to these figures. Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute, expressed surprise at the decline in consumption and weakening investments, which are fundamental drivers of domestic demand. He emphasized that without a catalyst, the economy’s momentum is unlikely to exceed expectations.
Japan is not the only country affected by economic downturns. In the last quarter of 2023, the UK’s economy contracted by 0.3% compared to the previous quarter, which had seen a 0.1% decrease. Annually, the country’s economy shrank by 0.2%. While economists believe the recession will be short-lived, these figures are considered negatives for UK Prime Minister Rishi Sunak by the public and especially the opposition. Recent polls show the Conservative Party trailing behind the Labour Party. Henry Cook, a senior economist at MUFG Bank, stated that although the data is disappointing, there is no significant reason to panic. According to Cook, unemployment remains historically low, consumer confidence has increased, and there is no crisis situation.
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