Japan Enters Recession: Should We Be Surprised?
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.
- “The World in Balance Sheet Recession: What Post-2008 United States, Europe, and China Can Learn from Japan, 1990–2005”
- “Kyle Bass: Central Bankers Are Building Potemkin Villages to Deceive Us”
- “Lessons from Japan: Fighting a Balance Sheet Recession”
- “The Japanese Debt Crisis (Part 1): Has Japan Passed the Point of No Return?”
- “The Japanese Debt Crisis (Part 2): When Does Japan Cross the Event Horizon?”
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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