At the end of the year, the Gross Domestic Product had shrunk by 1.4 percent. During the third quarter, the Gross Domestic Product had exhibited a 1.3% increase. Bloomberg News had surveyed a few economists earlier this year. The economists were of the opinion that Japan will exhibit a decline of 0.8% However, the final number, which is 1.4%, is far ahead of what the economists had predicted.
One of the prime reasons behind this slump has been reduced private consumption. A decrease in private consumption has directly hit Abenomics, Shinzo Abe's ambitious economic plan for Japan.
The Economic contraction affecting the country has also affected the Yen. Japanese currency registered a hike of 5.6% against the Dollar. This is not a good sign for exporters.
The Bank of Japan had recently released a money stimulus. However, given the increase in the value of Yen, the money stimulus has been able to do little for the exporters especially.
According to Robert Barkley, Executive Vice President of Portfolio Management at Orix Trading, "The household consumption has weakened in the last couple of months. It was believed that seasonal factors will induce growth. However, people aren't willing to loosen their purse strings." He further explains, "If Yen continues to grow, it will affect capital spending and exports negatively. As it is, private consumption is exhibiting no signs of a recovery. In such a situation, Japan's economy may have a tough time in making a rebound."
Stock prices bring relief
The Yen registered a decline recently. It came down to 113.87 per Dollar. At the same time, the Topix Stock Index increased by 8 percent. On Friday, the share market also showed growth. This was a sign of relief for the Central Bank which was coming under pressure to further push its monetary stimulus.
Japan's GDP data has left the investors confounded. During the third quarter, Japan's gross domestic product dropped down. It was believed that Japan was tricking back into recession. However, the GDP, again, showed growth during the fourth quarter.
Japanese economy has been struggling since last three years. In December, the Japanese economy registered a slump in household spending, exports, and industrial productions. The Bank of Japan, under the leadership of Haruhiko Kuroda, has taken various measures to ease the economy out of recession. The Bank has released monetary stimulus and is pushing it further. At the same time, government is making efforts to increase wages, consumer spending and investment.
However, the change in the global market has been affecting Japan. The Chinese economy has been facing contractions as well The Bank of Japan released a stimulus earlier this year to fight with deflation. The Bank also introduced negatives rates.
Barkley pointed, “The wages in Japan haven't increased much in the last three years. As a matter of fact, the total increase in wages merely touches 1% in any year since 1997. In the last four years, the actual increase in wages has actually gone down."
Barkley is of the opinion that the Bank of Japan is likely to release more monetary stimulus. The announcement on this may come in March when the next meet is likely to take place.
Mondays report shows that
There is some good news for Japan. On Monday, it was declared that the overall business spending had increased by 1.4% in the fourth quarter of the year Likewise, the net exports also increased to add 0.1% to the GDP. Unfortunately, private consumption and private inventories did not follow with this trend. During the fourth quarter, private consumption dropped down by 0.8%. Similarly, private inventories went down by 0.1 percentage point during the fourth quarter.
China is Japan's leading trade partners. Negative changes in the economy of China are directly affecting the economy of Japan. Companies in both China and Japan are facing the brunt of this. Since the currency of both the countries are rising, major companies are already expecting a fall in their net profits.
Panasonic Corp, the Japanese multinational giant, predicted that its net profit are most likely to register a loss at the end of the year, i.e. March because the sale of air conditioners and other electronic devices has gone down in China. Likewise, Hitachi also reduced its net profit forecast. According to the people at Hitachi, China's reduced demand for construction machinery as well as reduced demands from oil-producing countries has hit Hitachi's business prospects negatively.
Many economists have predicted that Japan will fall into recession in the next year. However, according to another survey conducted between January 29 and February 3, if this recession happens, it will be the worst kind of recession that Japan will have seen since 2012.
