Japan’s Grim GDP Figures Add to Pressure for Action

Data on Monday suggests that japan might already be in the early phases of a recession. Japan’s GDP shrank 3.5% from July-September, marking the biggest drop since the Tohoku earthquake. This also poses a risk to government plans to raise the sales tax to help offset the large debt Japan has incurred. Main reasons stated in a WSJ article for the steep drop in GDP include (see second article):

  1. 5 percent slowdown in exports amid the global economic downturn
  2. Personal spending, accounts for about 60 percent of GDP, also declined 0.5 percent
  3. Automobile sales were slow as purchases of eco-friendly cars did not increase
  4. Corporate capital spending also declined 3.2 percent

The slowdown in exports can be attributed the high appreciation of the Yen causing exports to look less favorable. As for personal spending, this is the second consecutive quarter it has posted a loss. Automobile sales were expected to increase before the end of the government subsidy program, but with personal spending down it was not the case. The fall in corporate capital spending can be attributed to the households spending less along with the fall in exports making companies feel that holding their assets is a better use of funds.

It will be interesting to see how Japan handles this situation moving forward, seeing as they did not fair well after the asset bubble burst in the late 80’s and early 90’s.





5 thoughts on “Japan’s Grim GDP Figures Add to Pressure for Action

  1. myers

    In addition to the high appreciation of the Yen, the political tension between China and Japan must also be considered as a reason for the drop in exports (especially with automobiles).

  2. kuveke

    .9% fall of GDP for the quarter is not too worrying in the cases of automobile sales and private spending as we can expect these to go back to normal levels fairly soon. More worrying is the state of disarray of major corporations that have been forced to cut spending. At this point we can’t be too sure if Japanese firms like Sony will recover fully. Long term problems for Japan are probable if major corporations continue to struggle.

    1. myers

      Do you have any sources to back up your statement that automobile sales can be expected to go back to normal levels “fairly soon”? Most of the articles I have read show strong uncertainty about how long the China – Japan dispute will last. Toyota, the largest Japanese automaker, has estimates that are preparing for production to be 50 percent less than normal for the remainder of the year, 40 percent under in the first quarter of next year and 25 percent in the second and 20 percent in the third. Another large company, Japanese Airlines, sees the dispute significantly impacting their ticket sales between Japan and China for the next 6 months.



  3. wilburns

    I think the decline in consumer spending could be at least partially attributed to the rise in energy prices in Japan. The shutdown of most of the country’s nuclear reactors is having a huge effect on Japanese consumer’s ability to spend money on non-necessary items of expenditure, as well as on how much they spend on gas. This is bound to have an impact on overall consumption of all goods, and possibly cars.

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