Japanese Stock Market Surges Strongly... "Japanese Economy Expected to Contract for Three Consecutive Quarters"

Shinke Yoshiki "No Leading Economic Engine, Stagnation"
April Interest Rate Hike Expected... Difficult to Achieve 'Virtuous Cycle'

Japan's real gross domestic product (GDP) is projected to contract again in the first quarter of this year. Japan's real GDP for the fourth quarter of last year, previously released, showed a 0.4% decline compared to the same period the previous year, marking two consecutive quarters of negative growth.

On the 15th (local time), according to Bloomberg News, Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, stated, "Three consecutive quarters of negative economic growth are expected."

[Image source=AFP Yonhap News]

Economist Shinke is recognized as an expert in economic forecasting, having won the Japan Economic Research Institute's forecasting award 14 times. He assessed that "the Japanese economy is experiencing a severe recession without a leading engine."

Regarding the 0.4% contraction in Japan's fourth-quarter real GDP compared to the same period last year, he observed, "If there had not been a one-time increase in industrial royalties, it would have worsened to about -1.7%."

Bloomberg explained that if Economist Shinke's analysis is accurate, the Bank of Japan (BOJ) will find itself in an uncomfortable position as it seeks to exit negative interest rates for the first time in 17 years since 2007.

Economist Shinke expects the BOJ to raise interest rates in April. He said, "Since there appears to be positive momentum for wage increases this year, they will probably mention that there are brighter signs ahead."

However, he predicted that achieving the BOJ's target of a virtuous economic cycle where wage increases lead to inflation will be difficult. This is because personal consumption has been declining for three consecutive quarters since the second quarter of last year.

Daihatsu Motor, a subsidiary of Toyota Motor Corporation, halted production after a safety scandal broke out in December last year. Economists expect this production stoppage to significantly impact Japanese economic activity until full production is restored. Regarding this, Economist Shinke said, "Currently, there is no resilience in the Japanese economy to counter headwinds," adding, "Households are struggling with inflation, and companies are postponing investments."