Japan’s Recovery Stalls As Economy Plunges into Negative Growth for Second Month

Japan’s economy has been experiencing a decline for the second consecutive month, according to government data reported by Leika Kihara in Tokyo for Reuters. This marks a significant setback after Japan narrowly avoided a recession in the fourth quarter. The government downgraded its assessment on the index for the first time since February 2019, highlighting the fragility of Japan’s recovery and potentially complicating the central bank’s decisions on future interest rate increases.

The coincident indicator index, which measures the current state of the economy, dropped by 1.2 points in February to 110.9. This decline was attributed to decreases in exports and factory output, indicating that the impact of auto production disruptions is expanding. The government revised its assessment to suggest that the economy may have reached the peak of a boom-and-bust cycle in recent months.

Japan’s factory output unexpectedly fell in February due to disruptions at Toyota Motor and Daihatsu, which could have broader implications for the manufacturing sector. Weak consumption due to rising living costs before wage growth exceeds inflation may lead to a contraction in Japan’s economy in the first quarter. Despite this recent weakness, Bank of Japan Governor Kazuo Ueda stated in an interview with Asahi newspaper on Friday that the downturn is likely temporary. He maintained that the economy is still recovering moderately as a trend. Japan’s fourth-quarter GDP was revised up to a positive 0.4% annual growth rate from an initial 0.4% contraction, averting a technical recession.

In summary, Japan’s economy has been struggling lately with declining health for two consecutive months, attributed mainly to decreases in exports and factory output caused by auto production disruptions and weak consumption due to rising living costs before wage growth exceeds inflation. However, despite this setback, Bank of Japan Governor Kazuo Ueda believes that this downturn is likely temporary and that Japan is still recovering moderately as a trend, with its fourth-quarter GDP being revised upwards from negative growth rate to positive growth rate averting technical recession status.