Japan Has Slipped Back Into A Recession

Japan Economy Shrinking

Japan slipped into its fourth technical recession in five years between July and September

Official data on Monday showed the world’s third-largest economy shrank an annual 0.8% in July-September after a 0.7 percent contraction in the prior quarter.

A recession is marked as two consecutive quarters of declines.

Analysts responding to the decline say structural reform in the country must be aimed as ending supply-side constraints that include labor shortages. Japan has suffered from chronic deflation for the last 15 years, caused in large part by the country’s aging population.

The country is attempting to right the ship with a process known as “Abenomics.” The first two arrows of that program, monetary and fiscal stimulus, were meant to buy officials time. However, the Japanese government failed to meet its progress requirements.

“Without reform (the ‘third arrow’), the economy’s growth potential remains low, making it vulnerable to shocks and to suffering recessions more often,”┬ásaid Hiroshi Shiraishi, senior economist at BNP Paribas Securities.

 The Reuters Tankan sentiment index for manufacturers last week fell in November from October, posting the lowest reading since April 2013. The service sector index fell in October to its lowest since March, dragged down by wholesalers and retailers.

There have been a few bright signs. The economy continued to recover moderately on improvements in job and income conditions.

Officials say a big reduction in inventories was the major culprit in the third-quarter contraction. Excluding this effect, final demand contributed an annualized 1.4 percent point to growth.

But capital expenditure fell 1.3%, more than a median market forecast of a 0.4% decrease. That number reveals a sluggish state of manufacturing investment.