Nov. 15 (UPI) — Japan’s economy shrank for the first time in four quarters as inflation, a weak yen, and another COVID-19 wave have harmed the country.
The country’s seasonally adjusted real gross domestic product shrank 0.3% from the previous quarter, which translates to an annualized decline of 1.2%. Economists had expected an expansion of 1.2%, according to preliminary data released Cabinet Office on Tuesday.
“When the yen falls this fast, companies face a tough situation in that they are hit by higher import costs of materials while they can’t easily pass on costs to exports when overseas economies are slowing down,” Harumi Taguchi, principal economist at S&P Global Market Intelligence, told the Japan Times.
For the first time in 24 years, Japan has intervened to prop up its currency, which has suffered from accelerating inflation. In September, nationwide inflation surpassed 3% for the first time in over three decades.
Last month Japanese Prime Minister Fumio Kishida proposed an economic stimulus package that includes aid to reduce energy costs and cash handouts for childcare. The proposal comes after consumer spending cooled off due to Japan’s record COVID-19 wave in the summer.
Chief Cabinet Secretary Matsuno told Nikkei Asia that the Japanese government recognizes that “the environment surrounding households and businesses is becoming more difficult, with declining real household incomes and rising corporate costs,” adding that the cabinet will pay attention to concerns of a global economic recession.
Economists are optimistic for the fourth quarter, with tourism expected to rebound due to fewer COVID-19 restrictions.
“We are expecting a flip back into expansion in Q4 which will benefit from a rebound in inbound tourism and a stronger trade balance,” Darren Tay of Capital Economics, said.
