Japan escaped deflation only to now face stagflation risk

At the beginning of the year, Japan looked like it might be just that Go past Its stagnation has persisted for decades. Booming stock markets, rising wages, and The first rise in interest rates For 17 years, investors and economists have argued that the Asian economy was like this Finally converted corner.

But tepid growth is testing this optimism. Japan’s Cabinet Office on Thursday revealed its preliminary estimates for GDP growth. advertisement The country’s economy contracted at an annual rate of 2% in the first three months of 2024. This represents the country’s third consecutive quarter of flat to negative growth.

Japanese officials blamed it Temporary shocks to a worse-than-expected recession, such as supply disruptions in the auto sector. Late last year, Daihatsu, an automaker owned by Toyota, subsequently halted production Violations revealed In testing data that extends back decades. Company only Fully resuming production last week.

But economists believe the recession may be caused by something deeper than just a supply shock.

“The biggest concern is private consumption,” Stefan Angerek, an economist at Moody’s Analytics, told The New York Times. Wall Street Journal. Household consumption decreased by 0.7% compared to the previous quarter.

Corporate spending is also weak, falling 0.8% quarter-on-quarter, suggesting that “the private sector recovery remains well underway,” HSBC economists Jun Takazawa and Frederic Neumann wrote in a research note on Thursday.


Prices in Japan rose 3.2% last year, the highest rate since 1982. Inflation has slowed since then, but is still rising faster than income. Real wages have fallen for two years in a row, meaning that “households understandably continued to limit their spending” in the latest quarter, HSBC’s Takazawa and Newman wrote.

The combination of weak growth and high prices raises the specter of stagflation. “There is barely any growth and inflation is high,” said Taro Saito, head of economic research at the NLI Research Institute. Bloomberg.

Slowing growth complicates the question of whether and when the Bank of Japan will raise interest rates again to control inflation. “This is not at all a situation where they can raise interest rates again right away,” said Nobuyasu Atago, chief economist at the Rakuten Securities Institute for Economic Research. Bloomberg.

The Bank of Japan increased interest rates in mid-March to 0-0.1%, ending the last remaining negative interest rate regime among major economies. Central bank governors Favor Successful wage negotiations, where Japanese unions won The biggest pay increases More than 30 years ago, because of their decision to raise interest rates.

If Japan decides to postpone raising interest rates, it may happen Create another problem:Yen is weak.

The Japanese yen fell to a record low as interest rates in the country remained well below those offered by the United States. A weak currency makes exports cheaper and imports more expensive. This is good for export-focused sectors such as tourism and automobile manufacturing, but hurts households and industries that depend on imported inputs.

Japanese companies are starting to worry about consequences From the constantly weak yen. The country’s largest restaurant companies are now building more outlets abroad in an attempt to escape the weak yen, according to him Nikki Asia.

The yen may weigh on Japanese stock markets, which may weigh on them Rushed past Record bubble era earlier this year. Bloomberg It indicates that, in dollar terms, the Nikkei 225 is underperforming the S&P 500 and Hong Kong’s Hang Seng Index.

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