Will Japan fall in recession this year?

This year could be a crucial one for Japanese economy since it may bring the end to expansion initiated in 2002. In fact, a lot of economic indicators suggest that the economy has already tumbled and recession will begin pretty soon.

One of the biggest negatives is the noticeable slowdown in the export sector of the world's second largest economy. Exports to United States have already declined and we can also see signs of slowdown in exports to China particularly among core products as steel and semiconductors. In addition, even though the unemployment rate has been stable, employment is stagnating. The unemployment rate was at 3.8% in December, the same as in November, but the job offers to applicants ratio slipped. The declining in new job offers is visible especially in construction industry since the revision of building standards code implemented in June has caused the decrease in residential investments.

Last December, Japan's wages decreased at their fastest pace in 3½ years. Yet, inflation almost doubled from the previous month to 0.8 per cent. As a result of these economic circumstances, the Bank of Japan has hands tight in lowering interest rates and may not be able to bolster the economy.

Anna Fedec, analyst@tradingeconomics.com
2/6/2008 8:50:49 AM