Japan's economy has unexpectedly shrunk, leading the country into a recession and causing it to fall from its position as the world's third largest economy to Germany, according to CNN.
The Cabinet Office reported that the gross domestic product contracted at an annualized rate of 0.4 per cent in the final quarter of 2023, following a contraction in the preceding quarter.
A technical recession is commonly described as two back-to-back quarters of declining real GDP.
Based on the news report, the Asian economy entered a recession due to a decrease in domestic spending. Private consumption, which makes up half of the economy, dropped by 0.2 per cent as Japanese consumers faced increased prices for food, fuel, and other products.
Neil Newman, a strategist based in Tokyo at Japanmacro, informed CNN that the depreciation of the yen substantially increases the cost of living in Japan, as the country imports 94 per cent of its energy needs and 63 per cent of its food. A devalued currency generally leads to higher import costs.
"Private consumption was particularly weak, [and] market expectations was for it to be flat," Newman was quoted as saying. "Unfortunately this will get worse in January following the Sea of Japan earthquake. People stop spending in times of natural disasters."
