Japan’s economy could enter recession in 2023, economist says | Bot To News

Japan's economy is likely to enter recession in 2023, economist says

Japan’s economy is expected to enter recession due to the slowdown in export growth, according to Capital Economics.

“We think the Japanese economy will go into recession sometime next year,” Marcel Thieliant, senior Japan economist at Capital Economics, told CNBC’s “Squawk Box Asia” on Tuesday.

The recession will be “mostly driven by a drop in exports and also more caution, which is usually what you see when exports start to fall,” he said.

Japan last reported a larger-than-expected $15 billion trade deficit in October. Exports rose 25.3%, slower than September’s 28.9% year-on-year growth.

Meanwhile, imports jumped 53.5% year-on-year in October, up from last month’s 45% year-on-year growth. The country is due to report its monthly trade data on December 15.

In addition, Japan is expected to release revised third-quarter GDP on Thursday. Analysts polled by Reuters expected a 1.1 percent annual contraction for the July-September period – after previously reporting a 1.2 percent contraction.

This would mean that it is already on its way to what is usually categorized as a technical recession, defined as two consecutive quarters of negative growth.

The National Bureau of Economic Research, however, defines a recession as “a significant decline in economic activity that is widespread throughout the economy and lasts for more than a few months.”

Tokyo Tower, left, and commercial and residential buildings at night in Minato Ward, Tokyo, Japan, Saturday, Oct. 1, 2022. Photographer: Akio Kon/Bloomberg via Getty Images

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Thieliant said Japan’s central bank is likely to maintain its ultra-easy monetary policy and not start raising benchmark interest rates, particularly amid recession concerns.

“It would be very brave to tighten monetary policy in this environment,” he said.

Central bank governor Haruhiko Kuroda has reportedly declined to review the BOJ’s current stance on keeping interest rates low.

“The bank has indicated that it wants to see sustainable inflation, and the kind of cost-driven inflation we’re seeing now is not sustainable,” Thieliant said.

Core inflation in Japan for November was 3.6%, the highest in 40 years and above the BOJ’s target of 2%.

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Despite forecasts of a contraction in growth, Japanese household spending is steadily rising, rising 1.2% in October from a year earlier. It marked the fifth straight month of growth since falling 0.5% in May.

It’s also expected to show some slack, says Thieliant, who says the country’s real wages will eventually weigh on broader consumer activity.

“The recovery in spending will have to slow as these households are hit by real incomes,” Thieliant said, as the country saw its sharpest contraction in real wages in more than seven years.

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