Japan Is Back In Recession Again

November 16, 2015, 9:57 AM UTC
Japan Prime Minister Shinzo Abe Holds Election Result News Conference
Shinzo Abe, Japan's prime minister and president of the ruling Liberal Democratic Party (LDP), gestures as he speaks during a news conference at the party's headquarters in Tokyo, Japan, on Monday, Dec. 15, 2014. Prime Minister Shinzo Abe claimed a mandate for his economic program after his gamble on early elections paid off with a sweeping victory that forced the leader of the opposition to resign. Photographer: Kiyoshi Ota/Bloomberg via Getty Images
Photograph by Kiyoshi Ota — Bloomberg via Getty Images

Japan has fallen back into recession, after the economy contracted by an annualized 0.8% in the three months to September.

The news was worse than expected but not a complete surprise: economists had predicted an annualized decline in gross domestic product of 0.4%. But it is more evidence of how the world economy lost momentum during the summer under the influence of the slowdown in China and other emerging markets. It comes only a week after the Eurozone also reported slower growth during the summer quarter.

In year-on-year terms, gross domestic product growth was unchanged from the previous quarter at 1%.

It’s the fourth time in the last five years that the world’s third-largest economy has registered successive quarters of falling gross domestic product, the technical definition of recession. The latest one comes despite one of the biggest monetary stimulus programs in history by the Bank of Japan, and adds to fears that loose central bank policy, on which western nations have bet so heavily since the 2008 and ensuing Great Recession, has succumbed to the law of diminishing returns.

The economy had initially reacted positively to the BoJ’s stimulus policy in 2013, one of three “arrows” of “Abenomics” the strategy of Prime Minister Shinzo Abe for ending two decades of deflation. The yen had initially fallen 20%, boosting exports and business sentiment. BoJ Governor Haruhiko Kuroda doubled down on that bet last year as the economy weakened in the wake of a big rise in taxes, but the yen barely reacted the second time around, and Kuroda pointedly refused to add to the current asset purchases of 80 trillion yen ($65 billion) a month last month as evidence of the slowdown increased.

With its large export sector, Japan is inevitably exposed to developments in its biggest trading partners. There was more bad news on that score Monday when a survey of Asian business leaders showed confidence at its lowest level since 2012. According to a survey of Asian CEOs by PriceWaterhouseCoopers, only 28% were “very confident” of an increase in revenue over the next 12 months, down from 46% last year. The proportion of those who were “not very confident” rose to 27% from 8%.