Japan Faces Negative Growth in Q4 After Four Quarters... Yen Depreciation and Inflation Tsunami

Q3 GDP Expected to Decrease by 0.1% QoQ
Personal Consumption Slightly Grows Amid Inflation and Weak Yen
Government Likely to Have Less Justification for Continued Economic Stimulus

There is a forecast that Japan's economy will record a negative growth rate for the first time in four quarters. Due to high inflation and the depreciation of the yen, the growth in personal consumption, which drives the gross domestic product (GDP), has slowed, leading to expectations of negative growth for the first time in a year.

On the 14th, Bloomberg reported that 70% of its 34 economists forecast that Japan's real GDP (preliminary figure) for the third quarter (July-September) will record a growth rate of -0.1% quarter-on-quarter. Assuming this trend continues for a year, the annualized growth rate is expected to be -0.4%. Until the second quarter, Japan was expected to record a growth rate in the 6% range on an annualized basis. If this forecast materializes, Japan's real GDP will record negative growth for the first time in four quarters.

The decline in the yen's value has prevented a significant increase in private consumption, which caused the drop in GDP growth rate. Bloomberg explained that private consumption contracted as Japan's inflation rate exceeded the Bank of Japan's (BOJ) target of 2%, reaching the 3% range for three quarters this year, coupled with an unprecedented yen depreciation crisis. Since private consumption accounts for 50% of Japan's GDP, the level of individual consumption greatly influences whether the economy improves. Most economists estimated that Japan's private consumption increased by 0.3% quarter-on-quarter, but they assessed that due to inflationary pressures, consumption did not improve enough to drive GDP growth significantly.

Additionally, labor shortages and a sharp rise in labor costs due to the weak yen limited capital investment to a 0.1% growth quarter-on-quarter, which also affected the GDP decline.

There are also forecasts that this trend will continue into the fourth quarter of this year. Taro Kimura, a Bloomberg economist, stated, "Japan's export economy will be hit by weakening demand from China and the United States, leading to a decline in GDP growth rate in the fourth quarter as well."

Experts evaluated that the poor economic performance in the third quarter this year will provide justification for Prime Minister Fumio Kishida's cabinet to implement large-scale economic stimulus measures. There are also expectations that government concerns may increase regarding the end of the BOJ's negative interest rate policy, which is part of its large-scale monetary easing policy.

Bloomberg explained, "The sluggish GDP growth rate could provide justification for the BOJ to maintain the status quo until clear signals emerge that wages and prices are rising together," adding, "It will also provide justification for the Kishida cabinet that additional government support is necessary for the economy to recover."

This content was produced with the assistance of AI translation services.