Japan enters recession, even as Nikkei hits a 34-year high
Upstox
2 min read • Updated: February 15, 2024, 11:38 PM
Summary
Japan's economy has shrunk for two straight quarters, plunging the country into a recession. This has led many to believe that the country's central bank may consider raising interest rates going forward.
As a result of sluggish domestic demand, the economy of Japan contracted for the second consecutive quarter, thereby plunging into a recession. This led economic observers to reevaluate when the country's negative interest rate policy would end.
According to Cabinet Office figures on real GDP issued on Thursday, the Government of Japan indicated that its economy decreased at an annual rate of 0.4% from October to December of 2023. It shrank 2.9% from July to September. A contraction in GDP for two consecutive quarters has been considered as a signal that the economy is technically in a recession.
The weakening Japanese yen has been a key component in the drop to fourth place with Germany becoming the world's third largest economy. Economists assert that Japan's relative weakness is partly a result of the country's declining population as well as its trailing growth in productivity and competitiveness.
However, the silver lining to Japan’s recessionary woes is the Nikkei 225 index, which closed at a new 34-year high today. The benchmark stock index was supported by tech-related equities as well as solid corporate earnings.
Global investment major SoftBank Group's share price surged 10.73% to JPY 8,139 among Japanese equities during the October–December period, as the business achieved a profit after four straight quarterly losses. Tokio Marine Holdings Inc. which is Japan's largest property insurance group, and MS&AD Insurance Group Holdings Inc, a leading global insurance company, were two other top gainers, with gains of 11% and 10.82%, respectively.
A rise in US markets overnight and a weakening yen also helped Japanese shares, increasing the value of foreign revenue for exporters.
Conclusion
Japan’s recession poses significant questions regarding local demand and long-term competitiveness. However, despite this bleak forecast, the Nikkei 225 recently surged to a 34-year high, and notable performances by SoftBank present a more nuanced picture.