Japan Dips Back Into Recession

November 18, 2014 0 Comments

Well, there goes Abenomics…


GDP in Japan has fallen for the second quarter in a row, the last one occurring in Q3 2012. Technically, the intervals between recessions lasted from 3 to 5 financial quarters, but I’m not mincing words with everyone else. Officially, Japan has entered what is known as a ‘Triple-Dip Recession.’

Against the hope in expectations that the sales tax instituted last year would create 2.2% annual growth lead by the Government sector. Instead, GDP ended up slumping in Q4, officially pushing the economy back into another recession. Components of the report indicated that private consumption posted a mere 0.4% uptick for the quarter, lower than the projected 0.8% increase. This goes to show that this year’s sales tax hike from 5% to 8% is still weighing on spending, months after its implementation in April.

Here are the components in the latest GDP report:

What have we learned from this? For one, we learn that destroying your currency in an attempt to create inflation isn’t the best way to get economic growth. However, if the BOJ can get prices to move up just a bit, workers can demand for higher wages and companies will have no choice but to give into their demands (somehow). With higher wages, this means that employers sales and their profits will rise miracalously. Naturally, hiring will boost because of the given market trends. That is the basic jist of Abenomics, in theory. In practice, we seem something entirely different. The problem is that wages have fallen for more than 24 straight months, which also suggest that Japan has been suffering from a recession for quite some time.

This latest string in economic data suggest that Abenomics is doing more harm than good. With the election in Japan coming up, this isn’t going to help his chances. It was also announced that Abe’s Tax Hike, scheduled for Dec 2015 was rescheduled to sometime around 2017. Obviously the data shows that the economic is too weak to handle more tax increases.

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