- Japan's GDP contracted by 0.4% in the fourth quarter of 2023, marking two consecutive quarters of economic contraction.
- Despite the recession, external demand and exports rose by an annual rate of 11%, supported by a weak yen.
- Japan's unemployment rate fell to 2.4% in December, and the Nikkei 225 index sees significant growth in 2023.
In an unexpected turn of events, Japan The economy contracted at an annual pace of 0.4% in the last quarter of 2023, after a 3.3% contraction in the previous quarter. Contrary to economists' expectations of 1.4% growth, this decline was attributed to weak domestic consumption in all major categories, including consumer spending. In dollar terms, this contraction led to Japan ceding its position as the world's third largest economy to Germany.
Exports rise 11% amid recession
The heart of Japan's economic problems lies in domestic demand. Consumer spending, which makes up half of the economy, fell 0.9% year-on-year in the fourth quarter. Japanese consumers are suffering from high costs of basic goods such as food and fuel, which have been exacerbated by the weak yen. The depreciation of the currency has led to a significant increase in the cost of living, considering that Japan imports most of its basic energy needs and a large portion of its food. Despite these challenges, external demand presented a silver lining, especially in exports. Exports rose by an annual rate of 11% compared to the previous quarter, benefiting from the depreciation of the currency and strengthening domestic consumption, including tourism spending.
Economic Resilience: Unemployment rate stands at 2.4%, Nikkei rises by 28%
Despite the backdrop of recession, Japanese economic indicators show signs of resilience. The unemployment rate fell to a low of 2.4% in December, and the benchmark Nikkei 225 index rose, reflecting positive market sentiment. The Bank of Japan's Tankan survey also revealed the strongest business conditions since the fourth quarter of 2018. Furthermore, Japan's stock market outperformed Asia in 2023, with the Nikkei rising 28%. With Goldman Sachs forecasting 1% GDP growth in the first quarter of 2024, there is cautious optimism about Japan's economic recovery. Investors remain optimistic, viewing the current decline as a temporary setback rather than a long-term trend.
