Japan was victim to some extreme weather events and seismic activity in the course of 2018 which had negative effects on the nation’s economic output. These events were partially to blame for an economic contraction in Q3 when the economy shrank by 0.7%.
The preliminary data reading for Q4 has now been released and shows that the economy managed growth of 0.3%, thereby avoiding a recession which is defined as (at least) two consecutive quarters of economic contraction. The actual level of performance came in marginally behind expectations which called for growth of 0.4%. The recovery was credited to stronger levels of both household consumption and a particularly strong rebound in business investment in the wake of the earlier natural disasters.
Taking the year as a whole, the economy expanded by 1.4% (once better than initially estimated Q3 data was applied) which was largely in alignment with forecasts. On an historical basis, the Japanese economy managed an average annual growth figure of 0.49% (from 1980 to 2018), peaking at 3.2% in Q2 1990 and seeing a record contraction of -4.8% in Q1 2009.
Japan has the third largest economy in the world after the USA and China and is heavily reliant on its export activities. For many years, it was dogged by deflation (falling prices) which stymied domestic demand since consumers delayed major purchases for as long as possible against the expectation that they would be cheaper when eventually purchased. Currently, under the economic policies of Prime Minister Shinzo Abe, the Japanese economy is seeing positive inflation figures of 0.2% having eased considerably from 1.4% in October.
The Yen continues to be viewed as a “safe haven” currency in times of economic turmoil. As an exporting nation, Japan is vulnerable to decreasing economic demand caused by a slowing of the global economy, generally, and as a result of knock-on effects from the trade war between the world’s two largest economies.