Japan's economy makes surprise fall into recession

Japan's economy unexpectedly shrank for the second consecutive quarter, leaving the world's third largest economy in technical recession. 

Gross domestic product (GDP) fell at an annualised 1.6% from July to September, compared with forecasts of a 2.1% rise. 

That followed a revised 7.3% contraction in the second quarter, which was the biggest fall since the March 2011 earthquake and tsunami.

Generational Dynamics 

Economists were expecting Japan's economy to grow by 2% in the third (most current) quarter, after having plunged a historic 7.6% in the second quarter. Instead, the GDP fell an additional 1.6% in the third quarter. And since the GDP has now fallen for two months in a row, Japan's economy is officially in a recession. The fall into recession is being blamed on a sales tax increase from 5% to 8% in April, which caused consumers to stop spending. 

Japan's prime minister Shinzo Abe will put any further planned tax increases on hold, and will dissolve the Lower House and hold a "snap election" in December. 

Japan's economy has been in a deflationary spiral since the early 1990s, following a huge real estate and stock market bubble in the 1980s, and a huge crash that began in January, 1990. In the spring of 2013, Shinzo Abe launched something called "Abenomics," involving a huge quantitative easing program. Japan's central bank "printed" hundreds of billions of dollars and used it to buy bonds. This is similar to America's recent quantitative easing program which, at its peak, put $85 billion per month into the banking system. 

The objective of Abenomics was to end deflation once and for all. But instead of stimulating spending, all the money just poured into the stock market, benefiting only a minority of rich people. The vast majority of Japanese people have incomes that are stagnant or falling. 

This has also been a criticism of America's quantitative easing program. In the U.S., the median income has been falling, but the stock market has been pushed up into bubble levels, with the S&P Price/Earnings ratio (stock valuations) close to 19, an astronomically high level, much higher than the historical average of 14.

DYI