Japan GDP Shrinks as Wage-Inflation Spread Wider

The Japanese economy shrank in 3Q23 as its GDP decreased by 0.5% QoQ, worse than market forecasts of a 0.1% decline and after a 1.1% growth in 2Q23. It is the first contraction since 4Q22. As for the year-on-year term, Japan GDP shrank by 2.1% YoY which is worse than 0.6% decline expectation.This is contrast to the previous 1Q23 GDP of 3.7% YoY and 2Q23 GDP of 4.5% YoY.

The reason for this shrinkage is due to the cost pressure from global inflation and demand slowing down. Even with core consumer inflation rate (excluding volatile fresh foods) that eased to 2.8% YoY in September, but the adjusted average monthly real wages declined 2.4% YoY. This resulted in a drag on Japan’s consumption.


When breaking down the GDP components, private consumption, which is the largest item that accounting for more than half of Japan’s economy, is unexpectedly sluggish with 0.0% QoQ or no growth at all, even below a 0.2% QoQ rising expectation, after a 0.9% QoQ fall in 2Q23. As for the year-on-year term, private consumption shrank by 0.2% YoY.

Capital expenditure unexpectedly fell for the second straight quarter to a decline of 0.6% QoQ, compared with consensus of a 0.3% QoQ growth and down at a much steeper rate than -0.1% QoQ in 2Q23. As for the year-on-year term, corporate investment decreased by 2.5% YoY. 


Public investment declined for the first time in three quarters (-0.5% QoQ in 3Q23 vs 0.3% QoQ in 2Q23). Government spending picked up 0.3% QoQ after showing no growth previously.

Net trade was also a drag on the GDP, in line with forecasts, as exports (0.5% QoQ in 3Q23 vs 3.9% QoQ in 2Q23), which rose less than imports (1.0% QoQ in 3Q23 vs -3.8% QoQ in 2Q23).