- Japan’s GDP unexpectedly contracted 0.4% in Q4 after a 0.3% drop in Q3, falling into recession with two consecutive quarters of economic decline. This missed forecasts for 1.4% growth.
- In 2022, Japan’s nominal GDP grew 5.7% to 59.148 trillion yen ($4.2 trillion). However, Germany’s nominal GDP grew faster at 6.3% to 4.12 trillion euros ($4.46 trillion), allowing it to overtake Japan as the world’s third-largest economy.
- The weak growth makes it difficult for the Bank of Japan to tighten policy. The Nikkei 225 climbed 0.65% as investors saw it as a sign the BOJ may delay exiting negative rates. The yen hovered around 150 to the dollar.
Japan has lost its spot as the world’s third-largest economy to Germany, as the Asian giant unexpectedly slipped into recession. Japan reported two consecutive quarters of economic contraction, falling 0.4% in Q4 after a 0.3% drop in Q3.
Weak Fourth Quarter GDP
In Q4, Japan’s GDP fell 0.4% annually, sharply missing forecasts for 1.4% growth. On a quarterly basis, GDP declined 0.1% compared to expectations of a 0.3% rise. This dire growth picture makes it difficult for the Bank of Japan to tighten policy. The Q3 contraction weakens the idea that inflation is driven by increased income and spending.
Full Year Nominal GDP Growth
For 2023, Japan’s nominal GDP grew 5.7% to 59.148 trillion yen ($4.2 trillion). Germany’s nominal GDP grew 6.3% to 4.12 trillion euros ($4.46 trillion). Measuring output without adjusting for inflation, Germany overtook Japan in dollar terms.
Market Reaction
In response to the GDP release, the Nikkei 225 climbed 0.65% as investors saw weak growth as a sign the BOJ may delay exiting negative rates. The yen hovered around 150 to the dollar.
