Sluggish economy, Japan's GDP shrinks in the third quarter

Japan's GDP data contracted due to COVID-19 restrictions by the government which made the private consumption sector decline. USD/JPY shows no significant response.

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On Monday (15/November), the Japanese Bureau of Statistics released data on GDP which fell from 1.5 percent to -3.0 percent on an annual basis (Year-over-Year) in the third quarter.

This figure is worse than economists forecast for a decline of 0.8 percent.

Japan's economic downturn was also seen in the quarterly GDP data (Quarter-over-Quarter) which contracted 0.8 percent, worse than expectations of a 0.2 percent decline.

In general, the Japanese economy has not shown signs of a solid recovery since the start of the year.

The reason is, the expansion is only seen in the second quarter.

This condition is inseparable from the COVID-19 restriction measures taken by the government at the beginning of the third quarter.

As a result of this policy, private consumption, which accounts for more than half of the economy, weakened to 1.1 percent, lower than the expected 0.5 percent decline.

"Japan's consumption and capital spending tended to be sluggish during the third quarter which underlies the slump in GDP data… The economy may recover gradually if vaccinations are more widespread, but concerns over another wave of COVID-19 could potentially weigh on consumption next year, coupled with the prolonged impact of supply shortages chips and deteriorating trading conditions," said Saisuke Sakai, senior economist at Mizuho Research and Technologies.

Japan is actually facing stagflation, because the inflation rate continues to rise while the economy contracts.

This condition can suppress consumer spending so that it can have a systemic impact on the Japanese economy in the future.

USD/JPY Moves Calm

The release of Japan's third quarter GDP data this morning did not have a significant impact on the movement of the Yen against the US Dollar.

The USD/JPY pair is in the range of 113.94, gaining 0.08 percent on a daily basis.

Broadly speaking, the Yen is still not moving on the dominance of the US Dollar which has strengthened significantly over the last few sessions thanks to expectations of a Fed Rate Hike.