Japanese Economy Heads for Recession

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Following a rise in sales tax, a major typhoon, weak global demand, and the outbreak of coronavirus, Japan’s economy slumped at an annual rate of 6.3%, across the final quarter of 2019, the fasted rate in five  years.

From October to December, annual Gross Domestic Product (GDP) fell to -1.6%. Phillippe Waechter, chief economist at Ostrom Asset Management, claimed that a VAT increase and the 18 months trade war between US and China were partly to blame.  

Many feel that with coronavirus still rising outside of China and rapidly increasing in Japan, the country’s economy could face a further hit in the first quarter of 2020.

Japanese coronavirus fears made the news in the UK after a cruise ship, the Diamond Princess, had to be quarantined off the coast of Japan. 

This was the country’s first case of infection, discovered on 1st February. Now there are over 400 cases of Covid 19 in Japan and the virus is thought to not yet have peaked in the country.

The yen softened by 1.4 percent on Wednesday to a near nine-month low of ¥111.4 to the dollar, from ¥110 earlier in the week. Traders said the move had been driven by non-Japanese institutions trading during London and New York hours. 

It had weakened further to ¥112 by Thursday afternoon in Europe.

It is possible that due to this period of negative growth, Japan’s Central Bank may have to use further  expansionary monetary policy to stimulate growth, but running the risk of pushing the value of the Yen down even lower.

Since 30th January, Prime Minister Shinzo Abe has summoned meetings almost every day, and gave instructions to relevant ministers and deputies to take proactive countermeasures. 

Japan will be hoping that the effects of the Coronavrius die down before their major tourism season kicks in and perhaps more crucially, before the Tokyo Olympics.

Image: [Sky News]