Practical analysis for investment professionals
17 November 2014

Japan Enters Recession: Should We Be Surprised?

Posted In: Economics

After declining 7.3% in Q2 2014, Japan’s GDP fell 1.6% in Q3 2014 — officially placing the country in recession. It seems Japanese Prime Minister Shinzo Abe’s “Abenomics” strategy is failing. Should this really be a surprise?

Beginning in Q2 2014, Japan increased the national sales tax from 5% to 8% — pulling future demand into Q1 GDP ahead of the well-known tax hike, and harming Q2 GDP materially once it hit. The Q3 news also comes just weeks since the Bank of Japan (BOJ) announced a major acceleration of monetary stimulus to 15% of GDP. Clearly, the BOJ was worried about the Japanese economy. However, this isn’t Japan’s first trip to the rodeo. As highlighted in Bloomberg’s “Japan Unexpectedly Enters Recession as Abe Weighs Tax: Economy,” in 1997, then-Prime Minister Ryutaro Hashimoto hiked consumption taxes by 2%, pushing Japan into recession — causing Mr. Hashimoto to resign his post.

It seems the events in Japan raise more questions than answers. Why is Japan raising the national sales tax at all? Why has the BOJ accelerated money printing so aggressively? Is this driven by Japan’s large and growing government debt? Can Japan maintain low interest rates? Are there lessons for the European Union? The United States? China? To help you answer these questions, here’s a brief list of insightful, analytical content on the nature of Japan’s economy.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image Credit: ©Foreign and Commonwealth Office, United Kingdom


About the Author(s)
Ron Rimkus, CFA

Ron Rimkus, CFA, was Director of Economics & Alternative Assets at CFA Institute, where he wrote about economics, monetary policy, currencies, global macro, behavioral finance, fixed income and alternative investments, such as gold and bitcoin (among other things). Previously, he served as SVP and Director of Large-cap Equity Products for BB&T Asset Management, where he led a team of research analysts, 300 regional portfolio managers, client service specialists, and marketing staff. He also served as a Senior Vice President and Lead Portfolio Manager of large-cap equity products at Mesirow Financial. Rimkus earned a BA degree in economics from Brown University and his MBA from the Anderson School of Management at UCLA. Topical Expertise: Alternative Investments · Economics

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