Japan's Economy Shrank Last Quarter, And Quickly Too

Japan's Economy Shrank Last Quarter, And Quickly Too

about 4 years ago2 mins

Things are looking pretty bleak for Japan: data released on Monday showed the country’s economy shrank at its fastest rate in years last quarter 🇯🇵

What does this mean?

The world’s third-largest economy shrank at its fastest rate of decline since 2014 – and far quicker than investors were expecting. That acceleration may have something to do with a sales tax that kicked in back in October, which was likely behind the 11% plunge in consumer spending in the last three months of 2019, dragging down Japan’s economy as a whole 📉

This isn’t a first for Japan: a sales tax increase in 2014 had a similar effect. The government did take some pre-emptive economy-boosting measures to help cushion the effects, but Monday’s data seems to suggest they didn’t work. And given that the central bank has already lowered interest rates into negative territory, there’s not much it can do either.

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Why should I care?

Even if investors brush off the sales tax hike as a one-off, it’s not like Japan’s outlook is particularly bright: the country’s economy is expected to suffer a fresh hit from the coronavirus outbreak. And if that leads its economy to shrink again in the first quarter of 2020, that would put Japan in a recession – i.e. two consecutive quarters of economic decline 😬 Investors are starting to get nervous, which might be why Japanese stocks fell on Monday.

Chinese tourists’ money has become an important part of the Japanese economy, and there was good news on that front on Monday, at least. China pledged to implement its own economy-boosting measures to help deal with the economic blow from the coronavirus outbreak, which could include lower taxes and interest rates 💴 That, in turn, should increase Chinese citizens’ purchasing power at home and abroad.

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