Japan’s economy has entered a technical recession as GDP unexpectedly contracted by -0.1% qoq in Q4, much worse than expectation of 0.3% qoq growth. That also marked a continuation from -0.8% contraction seen in Q3. On annualized basis, the downturn was -0.4%, a stark contrast to the anticipated 1.4% growth and following -3.3% contraction in the previous quarter.
The contraction is attributed primarily to decline in private consumption, which accounts for over half of the Japanese economy, falling by -0.2% qoq. Capital expenditure, another significant driver of private-sector growth, also decreased by -0.1% qoq. However, external demand, as indicated by the net exports, provided a slight buffer, contributing 0.2 percentage points to GDP, with exports growing by 2.6% qoq.
Economy Minister Yoshitaka Shindo emphasized the importance of solid wage growth to support consumer spending, which he noted is currently “lacking momentum” amidst rising prices. He also pointed out that BoJ considers a broad range of data, including consumption patterns and risks to the economy, when formulating monetary policy.
