Japan’s Economy Unexpectedly Contracts in 3Q as Yen Weakens

Japan’s economy unexpectedly shrank in the third quarter as the yen’s record decline crushed growth momentum, leaving the country’s recovery from the pandemic in a vulnerable position amidst growing fears of a worldwide recession.

Official data released on Tuesday revealed that after three consecutive quarters of expansion, Asia’s second-largest economy shrank by 0.3 percent during July-September.

This underperformance is equal to a 1.2% annualized decline.

Private consumption, which accounts for more than half of Japan’s $5 trillion economy, increased by 0.3%, compared to 1.2% in the previous quarter.

A major reason for the unexpected decline is the effect the Japanese yen’s recent weakness has had on the economy. This highlights that Japan still has a long way to go before it can fully recover from the pandemic, and that there are still many potential downsides in the road ahead.

The government’s current stimulus package is being implemented with the expectation that it will help stabilize the economy in the coming months. Japan’s reopening of its borders also brings the possibility of increased inbound spending from foreign visitors drawn to the country’s new affordability.