Japan Slips Into Recession, Loses Spot as World's No. 3 Economy

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Facts

The Japanese economy declined in Q4 last year due to four-decade high inflation and a weak yen despite projections of moderate growth, pushing the country into a technical recession after economic contraction was reported in two straight quarters.¹
According to the latest data from Japan's Cabinet Office, its GDP fell by 0.4% in the final three months of 2023, compared to a year earlier, after shrinking by 3.3% in Q3.²
Although external demand helped boost exports of goods and services, it was the only category that made a positive contribution to the economy.³
Accounting for over half of GDP, private consumption declined by 0.2% in the fourth quarter, as households reportedly tightened discretionary spending due to rising living costs.⁴
With this preliminary nominal GDP for 2023, Japan has lost its status as the world's third-largest economy by some $200B to Germany, whose population is about two-thirds that of Japan's.⁵
This is the second time Japan has fallen in this ranking in roughly a decade and a half. Earlier, China claimed the position of the world's No. 2 economy after the US in 2010.⁶

Narrative A, as provided by Nikkei Asia. Things look bleak for theJapanese economy. While the Q4 contraction may have been due to a trend in saving money due to inflation, a third consecutive decline is likely between January and March 2024 amid falling exports.
Narrative B, as provided by Asia Fund Managers. There's room for optimism in Japan, as available data for the current quarter indicates a potential recovery based on exports and on private consumption since inflation is stabilizing and wages are expected to grow.