Japanese Economy At Risk Of Entering A Recession

Matty-Sways

Japan’s economic contraction is being exacerbated by the coronavirus.

Japan’s economy performed very poorly during the last quarter of 2019, experiencing a contraction of 6.3%. This contraction was much worse than the estimates of a 3.9% contraction. One major reason for the economic contraction was a large drop in consumer spending due a recent sales tax hike.

The national sales tax was increased from 8% to 10%. However, the spread of the coronavirus is likely to keep private consumption low.

“Because of the effects of the novel coronavirus, weakness in consumption will likely continue in the January-March period. Exports and production could be dreadful as the supply chain is interrupted,” said Mari Iwashita, an economist at Daiwa Securities.

A technical recession would be two consecutive quarters of economic contraction. Chinese spending makes up a large part of tourist spending in Japan. Production in Japan has also been stalled because of the coronavirus. For example, Nissan had to stall production in its Japanese factories because it has not received necessary parts produced in Chinese factories.

There has been calls for the Japanese government to step in.

“The Japanese government needs to state its intention to clearly shift toward fiscal expansion and prepare further economic measures by issuing a large amount of new government bonds,” said Takuji Aida, an economist in Tokyo.

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