What is recession? Why has Japan's economy slipped into recession?

International Finance

What is recession? Why has Japan's economy slipped into recession?

16 Feb 2024 Zinkpot 144

Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world's third-biggest economy to Germany.
Recession occurs when the GDP growth rate is negative for two consecutive quarters.
Japan's gross domestic product (GDP) fell an annualized 0.4% in the October-December period after a 3.3% fall in the previous quarter.
Japan's recession has been caused by a combination of factors. One of the main factors is the country's aging and shrinking population, which has led to weak domestic demand and sluggish consumption.
Additionally, capital expenditure has been sluggish, and private consumption has fallen. The country has also experienced two consecutive quarters of contraction, which is a technical recession.
The preference for investing overseas rather than in the domestic market has also contributed to Japan's economic slowdown.
Furthermore, the country's debt levels have continued to rise in response to the financial crisis during the Great Recession in 2008, the Tōhoku earthquake, tsunami and Fukushima nuclear disaster in 2011, the COVID-19 pandemic, and the subsequent recession in January 2020 and October 2021.
The banking system's dysfunctionality, the focus on rural public works projects with low multipliers, and uneven progress in regulatory reforms have also contributed to the lack of productivity growth in many of Japan's industries.
Additionally, a weaker yen has played a role in Japan's relative decline in nominal GDP, as comparisons of nominal GDP are in dollar terms.
Finally, Japan's monetary policy has been too tight during the Lost Decades, which has prolonged the recession.
Germany, which has a growing population and a strong small and medium-sized business sector, overtook Japan's third-largest economy position. The U.S. remains the world's largest economy, with China in second place.
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