Econintersect: Japan has entered its second recession in three years, its fourth in the last six years and its fifth of the 21st century. GDP contracted by 0.4% in the third quarter (-1.6% annual rate), following a decline of 1.9% in the preceding quarter (-7.3% annual rate). Reuters had reported an expectation for a gain of 0.5% (2.1% annual rate). The Tokyo stock market reacted with a big sell-off, the Nikkei 225 Index down 3% at last report. It is considered likely that there will be a “snap” election called which could cost Prime Minister Shinzo Abe some support in parliament. Some suggest that Abe may actually have a stronger hand to be more aggressively with fiscal easing because of the setback. That will depend on how much support his party loses in the elections.
The following three graphics from Trading Economics (two annotated by Econintersect) show three time-period views of japan’s GDP data. The latest two quarters of contraction are the first two following the increase of Japan’s consumption tax from 5% to 8% on 01 April this year. Econintersect suggests that one can make strong monetary expansion moves but take the expansion away with ill-advised fiscal policy. See GEI News report on that conflict from July 2013.
Looking at annual data (calendar years) Japan experienced two+ years of expansion after reaching recovery from the 14-year depression (1996-2010) but has been contracting again 2014. Only a strong fourth quarter can avoid at least a hiatus in the expansion started in 2011. Some analysts are expecting a stronger fourth quarter, but are these the same ones who expected the third to be positive?
- Economic and Financial Data for Japan (Statistics Bureau, Ministry of Internal Affairs and Communications, 17 November 2014)
- Japan recession hits Nikkei; Chinese shares mixed on trade connect (See Kit Tang, CNBC, 17 November 2014)
- Japan slips into surprise recession, paves way for tax delay, snap poll (Leika Kihara and Linda Sieg, Reuters, 17 November 2014)
- Japan GDP Growth Rate (Trading Economics, 17 November 2014)
- Japan: Conflicted Policy (GEI News, 04 July 2013)