Japan’s Economy Declines as People Limit Their Purchases

The Japanese economy contracted at an annual rate of 1.2% in the third quarter between July and September as consumption decreased despite rising prices.

According to official Cabinet Office figures issued on Tuesday, the third-largest economy in the world’s real gross domestic product decreased by 0.3% quarterly. If the quarterly rate had persisted for a full year, the annual rate illustrates how the economy would have expanded.

Japan’s GDP, which measures the total value of a nation’s products and services, was weaker than expected after a sustained expansion of three quarters. Like many other nations, Japan has been affected by the coronavirus pandemic’s destruction of industrial productivity and tourism.

Following a 1.2% growth in the prior quarter, private consumption increased by 0.3% from July to September. Private investment increased by 1.5%, a slower rate than the previous quarter’s 2.4% growth.

The decline of the Japanese yen against other currencies, particularly the US dollar, is another issue. The Federal Reserve has been increasing the benchmark interest rate, but the Bank of Japan has not.

According to economists, the difference in interest rates tends to increase the value of a country’s currency relative to a country with zero or negative interest rates, such as Japan. A year ago, the American dollar was worth around 115 Japanese yen. Today, it is worth roughly 140 yen.

Although Japanese exporters like the automaker Toyota Motor Corp. and the video game creator Nintendo Co. have largely benefited from the weak yen, it also raises the cost of imports. The most recent GDP data indicated declining exports.

A weak yen is terrible for imports, especially for Japan, which imports practically all of its oil and most of its food. Such prices have increased as a result of the fighting in Ukraine.

Compared to the US and some other countries, Japan’s inflation rate, which is around 3%, is moderate. But the price increases on everything, from packaged snacks to cab fares, are still apparent.

Japan has seen what is known as deflation, or a persistent price decline, in recent decades. Consumers may be little surprised by broad price increases because pay growth has been relatively slow.

The significant impact that China’s COVID-19 restrictions will have on Japan and the Asian area is another reason why they are being attentively observed. Despite certain limits having been loosened, concerns are increasing that a new wave of diseases will reinstate lockdowns and other restrictions.

The shortage of computer chips and other components is evidence that the restrictions adversely hurt Japanese production.

According to some observers, the Japanese economy will probably gradually improve, but it is still vulnerable to China’s economic measures and more significant geopolitical problems like relations between the United States and China.

But there were also hopeful indications. After more than two years of strict border restrictions, foreign tourists started to return last month.

According to Hiroyuki Ueno, senior economist at SuMi Trust, “the yen’s depreciation gives tourists better value for money, making Japan more attractive as a destination.”

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