JAPAN: ECONOMY SHRINKS DRASTICALLY


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Japan’s economy, the world’s third largest, contracted by 6.3 percent during the last three months of December, the sharpest contraction since a 7.4-percent hit in the second quarter of 2014.
The drop is almost twice the 3.7-percent shrinkage that had been expected.
The contraction is being attributed, in part, to last September’s sales tax hike from 8 percent 10, which has slashed consumer spending and business investment. The global slowdown also is weighing on Japan.
Consumer spending, which makes up more than half of the country’s economy, fell 2.9 percent against the 2 percent that analysts had forecast. Capital expenditures shrank by 3.7 percent, more than twice the 1.6 percent that was expected.
The nation’s economy already was burdened by the damage from last October’s week-long Typhoon Hagibis, the most powerful storm in decades to wash over mainland Japan, and ongoing cleanup of the Fukushima nuclear disaster.
In addition, Japan has suffered indirect effects from the U.S.-China trade war.
Now the country’s economy faces new threats: the coronavirus epidemic is curbing Chinese tourism and curtailing Japanese exports to China, where the economy is paralyzed by the illness.
As a result, Japan is on the brink of recession, defined as two consecutive quarters of economic decline.
The contraction turns up pressure on the Bank of Japan to stimulate the economy. However, the bank held monetary policy in place at its January meeting and predicted that the economy will rebound this quarter.
The bank also said it expects Japan’s economy to start growing again later this year as the virus outbreak recedes, the U.S. and China settle their differences, and businesses and consumers begin buying again out of necessity.
TREND FORECAST: The tax increases hitting the general public are producing the slowdown results that have been broadly forecast. To implement them at a time of slowing economic growth, prior to the coronavirus outbreak, was a policy decision that will drive the Japanese GDP lower throughout the year.

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