Japan’s Economy Ends the Longest Stretch of Economic Growth in 28 Years

Japan is the third largest economy after United States and China. It has a GDP of $4.9 trillion, which is slightly lower than the GDP of the United Kingdom and France, which have a combined GDP of $5.1 trillion.

For decades, Japan has used its expertise on manufacturing and its good relations with the United States and European countries to grow its economies. Japan is home to some of the biggest companies in the world like Toyota, Mitsubishi, and Mitsui among others.

In the morning today, the country’s cabinet office released the first quarter GDP numbers that missed the analysts’ forecasts. In the first quarter, the country’s GDP contracted by negative 0.2% and at an annualized rate of negative 0.6%. This growth was lower than what analysts had expected. They had expected the economy to grow by 0.4% and at an annual rate of 0.0%. In 2017 Q4, the economy had expanded by 0.1% and at an annual rate of 0.6%.

These numbers ended a 28-year winning streak for the Japanese economy. It ended the eighth quarter of consistent growth. The contraction in the country’s GDP were mostly because of reduced consumption and reduced private sector investments. The Gross Domestic Product (GDP) Price Index which measures the change in the price of all goods and services included in GDP contracted by negative 0.2% against the expected 0.3% growth. In addition, the GDP private consumption remained stagnant after seeing a 0.2% growth in the fourth quarter. In the quarter, the GDP Capital Expenditure, which is the total value of the finished goods and services produced in the economy, contracted by negative 0.1% against the expected0.4% growth.

These numbers were a blow to Japanese prime minister, Shinzo Abe who won a second term in 2017. His policies, commonly known as Abenomics have helped the country grow its economy and become more competitive. The Bank of Japan on the other hand has brought the base lending rates to negative and continued with a quantitative easing program.

However, Abe is facing a political fight of a lifetime. The opposition have accused him of offering support to his friend who runs a private school leading to a major political storm. His approval ratings have fallen to below 30% recently. He is also facing an unconventional American president who has promised to impose tariffs on exports. If this happens, it would be a significant blow to the Japanese economy because the US is its second largest trading partner after China.

Recently, the Bank of Japan has sent mixed signals about the winding down of the stimulus package. During his confirmation, Hurohiko Kuroda, the Bank of Japan governor said that the winding down would start in April next year. In the coming months however, he has changed tune and removed chances of a rate hike.

In the past one month, the Japanese Yen has fallen against the dollar, which is a good thing for an economy that derives most of its income from exports. The USD/JPY pair has moved from a low of 104.5 to the current high of 110.1.

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