Japan’s Economy Shrinks by 2%, Weakening Yen Continues to Impact Consumer Spending

On Thursday, new data was released showing that Japan’s economy shrank by 2% compared to the same time last year, a significant decline that exceeded the 1.5% decrease predicted by economists. The yen once again weakened against the US dollar, contributing to the contraction in the country’s economy.

Japanese consumers are getting less value for their money in international markets due to the weakening yen, which has impacted their purchasing power. Inflation-adjusted wages in Japan have been declining for two consecutive years, further contributing to the downward trend in consumer spending.

In an effort to support the currency, the Bank of Japan raised interest rates in March for the first time since 2007, making borrowing money more expensive. Despite these negative impacts, there are some potential benefits to a weakened yen. The Japanese government has spent a significant amount of money supporting the currency, and recent US inflation data has suggested a possible rate cut in the United States. This could lead to a slight strengthening of the yen against the dollar and have positive implications for Japan’s tourism industry as overseas visitors may find traveling to Japan more affordable. Additionally, Japanese exporters may become more competitive in international markets as their products appear cheaper to foreign buyers due to a weaker yen.