Japan enters recession as election draws near

Japan has fallen into recession just days before the impending election on December 16th. It seems that the world’s third largest economy is suffering the effects of the Eurozone crisis and a diplomatic row with China.

Yesterday, Monday 10th December, the Japanese government released revised fiscal reports showing that the economy shrank by 0.03% during the April- June quarter, in contradiction to previous reports which claimed a 0.1% growth. Coupled with growth figures revealing a 0.9% contraction in the third quarter of the year, with analysts expecting little to no improvement in this final quarter, this means that Japan is technically in recession, despite hopes for a strong economic recovery after 2011’s devastating earthquake and tsunami.

Japan has been hit hard by a sharp loss in trade figures with major trading partner China since a diplomatic territorial row between the two countries. Trade has also slowed between Japan and other key traders such as the US and Eurozone, resulting in reduced exports from Japan (one of the biggest drivers of Japanese economic growth), and revealing just how vulnerable Japan is to external demand conditions in Europe and Asia.

Added to this, the Eurozone crisis, which saw both Greece and Italy enter a state of recession, has caused many to look to Japan for financial investment, which has resulted in the Japanese yen strengthening against the dollar and the euro.

These factors combined do little to inspire hope of a strong, rapid recovery after the 2011 Fukushima Daiichi nuclear disaster, the clean-up cost of which has been estimated at around 150 billion pounds.

With these figures arriving so close to the Japanese election, it is understandable that the recession has become a political affair. Leader of the Liberal Democrat Party (LDP), Mr. Shinzo Abe, whose party is widely expected to oust the current government from power this week for the first time since 2009, has promised to spend heavily on public works should he be elected, and will fight hard to make the Bank of Japan push through measures to boost economic growth. Current Prime Minister Yoshihiko Noda, leader of the Democratic Party of Japan, has rejected such suggestions, saying that Mr. Abe’s proposed policies represent a dangerous attack on central bank independence.

Japan’s general election takes place this Sunday, 16th December.

Sources: The Guardian, BBC, Financial Times


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