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Japan Economy Likely Shrinks in Q3

Japan Economy Likely Shrinks in Q3 2023

Japan economy to have dip in the July-September quarter, marking the first decline in four quarters, according to a recent Reuters poll. This contraction could pose significant challenges for the central bank’s exit from its ultra-loose monetary policy.

GDP Projection and Weakness in Exports

The poll indicates that the Gross Domestic Product (GDP) of the world’s third-largest economy likely decreased at an annualized rate of 0.6% in the third quarter. This comes after an expansion of 4.8% in April-June. Moreover, on a quarter-on-quarter basis, the economy is estimate to fall by 0.1% in July-September.

Factors Behind the Contraction

The weaker GDP reading is attribute to soft consumption and sluggish exports. It suggests that the acceleration of inflation and reduced demand in China are negatively impacting Japan’s fragile economic recovery.

Read More: US Treasury Set to Borrow $776 Billion in Q4 2023

While consumption is gradually recovering as the economy normalizes post-COVID-19, it is expected to remain subdued due to the effects of increasing inflation. Thus, the poll indicates that consumption likely rose by only 0.2% in July-September, following a 0.6% decline in April-June.

Capital Expenditure and External Demand

In the third quarter, capital expenditure increased by 0.3% after a 1.0% decline in April-June. However, external demand, which contributed significantly to GDP growth in April-June, had a negative impact of 0.1 percentage point on GDP in July-September.

Future Monetary Policy

With inflation consistently surpassing the 2% target for over a year, analysts anticipate the Bank of Japan may begin phasing out its extensive stimulus in the coming year. However, Governor Kazuo Ueda emphasizes the importance of maintaining ultra-loose monetary policy until the economy demonstrates robust wage growth that can sustainably keep inflation around the 2% target.

The Japanese government is set to release preliminary GDP data for July-September on November 15 at 8:50 a.m. (2350 GMT, November 14).

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Please note that this article serves solely for informational purposes. As such, Gold Futures it is not financial advice. We strongly advise readers to conduct thorough research and consult with financial professionals before making any investment decisions.

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