Japan in recession, forced to give up third place in the ranking of the strongest economies in the world to Germany.
The bad news, which was not taken into account by the consensus of economists, arrived today with the publication of Japan’s GDP (gross domestic product) data for the fourth quarter of 2023.
But no shock for the Nikkei 225 index of the Tokyo stock exchangewhich continues to move forward on its path, setting new historical records.
The bag, which already closed yesterday, on the day the GDP was released above the threshold of 38,000 points, at the highest levels of the last 34 years, today it ended the last trading day of the week just a handful of points away from the record in its history.
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Bank of Japan now has its hands tied. The end of negative rates is moving away
Of one thing, market operators are betting, there is certainty:
in these conditions, the Bank of Japan led by governor Kazuo Ueda will not dare to put an end, at least in the short term, to the ultra-expansionary monetary policy based on negative interest rates and yield curve control (YCC).
Other than normalization of monetary policy: Japan’s GDP just announced clamors to confirm the status quo.
The great turning point in the monetary policy of the Bank of Japan, which has been confirmed white fly among central banks around the world, both in 2022 and 2023, for not having touched the rates while the cost of money shot up everywhere to combat the persistence of inflation, at least for now there won’t be.
Among other things, exactly the recent statements by the governor of the Bank of Japan and his deputy have allowed the Nikkei 225 index to continue to carry forward the historic phase of the rally, thanks to an inflation rate which, in Japan, has never reached the levels that frightened Jerome Powell’s Fed and Christine Lagarde’s ECB, and than in January it also highlighted itself with a positive surprise.
If in the space of a few days the Tokyo stock market has reached the goal of 37,000 points, and then reaching 38,000it was thanks to the comments of central banker Kazuo Ueda and his deputy Shinichi Uchida.
Uchida began, stating last week that “it is unlikely” that the BoJ will raise Japan’s interest rates “aggressively, even after the negative rate era ends.”
The next day he spoke the number one of the Bank of Japan Kazuo Ueda, confirming that Japan’s monetary policy will remain accommodative even if the Bank of Japan ends the era of negative rates.
Yesterday, the bad news on the GDP will certainly induce the BoJ not to activate the interest rate lever yet, so as not to further strangle the Japanese economy.
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But the Nikkei 225 index, which has already taken the scepter of the best stock market in Asia during 2023, does not stop its run: today the list closed with a jump of 0.86%, at 38,487.24 points , a value that is just a few hundred points away from the historical record.
The rally was commented by strategist di Morgan Stanley, who confirmed the bullish judgment on Japanese stocks, predicting a new “imminent” absolute high for the Tokyo stock market.
“The Nikkei is traveling above 38,000 points and it seems about time oriented towards breaking through to the all-time high in the short term, equal to 38,916 points, tested in December 1989″
Japan’s GDP shocks consensus: positive growth was expected
Let’s look at Japan’s GDP trend for the fourth quarter of 2023, announced yesterday:
in the last three months of last year, Japan’s gross domestic product it contracted by 0.4% on an annual basis, after the sharp fall in the third quarter, equal to a contraction of 3.3%.
The trend of the made in Japan economy took the consensus of economists by surprise interviewed by Reuters, who had forecast rather solid growth of +1.4% on an annual basis for the last three months of last year.
Negative trend also on a quarterly basis:
GDP fell by 0.1% in the fourth quarter, compared to the third quarter of 2023, in which it had already contracted by 0.8% (compared to the second quarter).
Also here, there was no shortage of negative surprisesgiven that the consensus had forecast an expansion of +0.3% on a quarterly basis.
Japan thus fell into a technical recession, phenomenon that occurs when GDP suffers negative growth for two consecutive quarters.
It was above all that weighed the weakness of domestic demand.
In fact, consumer spending has fallen in the fourth quarter of 2023 by 0.2% on a quarterly basis, significantly disappointing consensus expectations, which had forecast an expansion of 0.1%.
Analyzing the consumption expenditure item, it was solid the performance of consumption of durable goods, equal to +6.4%, while the consumption of semi-durable goods (-1.7%) and non-durable goods (down 0.3%) fell.
“The downside surprise has arrived from service charges “, commented Min Joo Kang, senior economist in ING’s research division dedicated to the economies of South Korea and Japan.
The expert stressed, however, that it is possible that the decline (in spending on services) is only temporary in nature, “after the increase continued for five consecutive quarters“, adding that “we expect consumption for services to recover this quarter”.
ING did not reveal any particular pessimism towards the GDP of Japan.
Economist Min Joo Kang actually said he believes in a recovery in gross domestic product during the first quarter of this yearalso thanks to the stimulus measures that have been launched by the Tokyo government.
Furthermore, “exports will continue to be the main growth driver, during this quarter”, as confirmed by Japan’s own manufacturing PMI index, above the threshold of 50 points.
“Private consumption expenditure is also expected to improve, given the slight stabilization of inflation expected for the first quarter of 2024 and expectations for solid wage growth through 2024″.
Finally, regarding investments, “we believe that solid corporate earnings and recent solid demand for IT lead to an increase in this component of the gross domestic product.
However, at this point the Bank of Japan will have to wait a little longer before announcing the major change in its monetary policy.
The ING economist underlined, in fact, that “weak GDP data will complicate BoJ decisions, especially in the face of a yen that is fluctuating around the psychological level of 150 (against the dollar)”.
Therefore, “we expect that market expectations on a rate hike (by the BoJ) in the months of March/April will fade.”
“If, however, GDP were to recover in the current quarter, as we expected, then the Bank of Japan could announce its first rate hike in June, although the possibility of monetary tightening and the end of the policy of yield curve control later, during the third quarter, is increasing.”
Germany becomes the third largest economy in the world, replacing Japan
The other bad news is that Japan, which has already lost second place in the world GDP rankings to China, now he has also been forced to give up third place: exactly, to Germania.
An article from CNBC reports some calculations, taking into account the variations due to the different reference currencies, and converting them into US dollars.
In all of 2023, Japan’s nominal GDP grew by +5.7%, to 591.48 trillion yen, or 4.2 trillion dollars (based on the dollar-yen ratio, on average, 2023).
Germany’s GDP instead it reported an expansion of +6.3% to 4.12 trillion euros, or $4.46 trillion dollars, based on the average of the changes that affected the 2023 euro-dollar exchange rate.