Japan lapsed into a technical recession for the second time since Prime Minister Shinzo Abe's tenure in office, according to Bloomberg. GDP dropped at an annual 0.8 percent in the third quarter, after falling 0.7 percent in the second quarter. The second recession arose from such factors as weak investment and falling demand from China. The state of the economy will force the government to take additional easing measures in the short-term.
Since Abe instilled his policy of 'Abenomics,' he has failed to convince companies to boost wages on a grand scale and invest greater capital in the economy. Companies are not only nervous about waning domestic demand but China's weak economy that hurts Japan's export-dependent economy.
Moreover, the U.S. Federal Reserve may raise interest rates in the near future, stoking further uncertainty among the business sector. The U.S. and China are two of Japan's largest markets.
Chinese volatility and Fed policy are out of government hands, but officials went array when they increased the consumption, which is never a popular move in Japanese politics. Officials argued that a consumption tax hike was necessary to service debt obligations, but imposing greater taxation on a population living through a floundering economy and stagnant wages placed officials in a tough position.
Abe's policies yielded record profits for large firms, and companies are showing a willingness to spread the rewards within the wage sector, but it is not enough. Even though inflationary wages and earnings advanced in the third quarter, central bank authorities wish to see higher earnings so more consumers can contribute to the economy, notes the Japan Times.
In an attempt at reform, the government aims to shift from an export economy to a domestic one, but this becomes a harder feat as the population grows older. Officials instituted child-friendly policies in the form of childcare services for workers, along with encouraging more people to have children, but Japan's low birth rate will continue to a problem, which may force the nation to open its closed society to more foreign workers.
Japan may have an aversion to foreigners having a more prominent role in society, but tourists are more than welcome, especially since the tourist sector is a vital part of the economy. To attract more visitors, Japan has marketed itself as a trendy place, advertising such attractions as anime cartoons and exotic foods.
The Paris attacks caused many people to fear travel internationally, and travel and agency stocks fell as a result, but this will have minimal effect on the Japanese economy as the country enjoys booming tourist numbers. Japan also showed strong consumer spending levels, which is excellent news for an economy that thrives on consumption.