As a result of consumers and businesses being hurt by the growing cost of living, Japan’s economy unexpectedly contracted for the first time in a year.
The three months leading up to the end of September saw a 1.2% annualized decline in the gross domestic product (GDP).
Due to concerns about a worldwide downturn and the higher cost of imports caused by the weak yen, people and businesses cut back on spending.
The third-largest economy in the world is predicted by economists to recover this year without going into recession.
By the end of 2022, according to Capital Economics’ Japan economist Darren Tay, “we are expecting a switch back into expansion.”
Japanese industry “will gain from an increase in inbound travel and a positive trade balance. However, malware threats and escalating inflation will constrain the scope of the recovery “Added he.
Japan has suffered as its currency has depreciated relative to the US dollar, along with a weakening global economy and worldwide inflation that is on the rise.
As a result of the yen’s recent 32-year lows against the dollar, Japanese individuals and businesses now pay more for imported products like food and oil.
The disparity between interest rates in Japan and the US has been a major factor in the yen’s recent decline.
To combat the growing cost of living, the US Federal Reserve has aggressively increased its key interest rate since March.
The Bank of Japan has continued to maintain its key rate below zero. A currency typically becomes more appealing to investors when its interest rates are higher. As a result, there is a decline in demand for currencies from nations with lower interest rates.
Nobuko Kobayashi of EY, however, emphasized that the currency’s decline is excellent news for Japanese businesses that export their goods.
The declining value of the yen, Ms. Kobayashi continued, may potentially benefit Japan’s economy by luring foreign capital.
