Japan's Economy Slips: Recession Looms

Japan's economy has unexpectedly contracted, leading the country to slip from its position as the world's third-largest economy to the fourth spot, now behind Germany.

The announcement came after the annual gross domestic product (GDP) growth rate plummeted to 0.4% in the final quarter of 2023, according to government data released on Thursday. This decline follows a 3.3% annual drop reported in the previous quarter, pushing Japan into a recession, defined as two consecutive quarters of economic contraction.

Economists were caught off guard by the sharp downturn, with forecasts predicting a 1.4% year-on-year GDP growth rate for the October to December period. Japan's fall to fourth place in dollar terms behind Germany underscores the severity of the economic downturn.

The recession was driven by a significant decline in domestic consumption across all major categories, particularly in private spending, which accounts for half of the economy. Japanese consumers faced challenges amid rising prices for essentials like food and fuel, exacerbating the economic slowdown.

"Japan heavily relies on imports for energy and food, and the weak yen has significantly contributed to the increased cost of living," explained Tokyo-based economist Neil Newman.

The yen's depreciation against the U.S. dollar, down 6.6% since the beginning of the year, has compounded the economic challenges for Japan, making it one of the worst-performing currencies among the Group of 10 industrialized nations.

Private consumption, already weak, deteriorated further in January following an earthquake in the Sea of Japan, which disrupted economic activity and prompted cautious spending among the population.

The earthquake, which struck the Noto...