Japan’s Economy Shrinks, Weighed Down by a Weak Yen and Rising Inflation

A weak yen and high inflation have eroded the purchasing power of Japanese consumers and dented the strength of businesses, making the country’s recovery return to the way Japan is adapting to life with the virus. coronavirus.

The country’s economy, the third largest after the United States and China, shrank at an annual rate of 1.2% in the three-month period from July to September, government data showed. on Tuesday. Analysts had expected an increase, but higher import prices weighed on the results.

The result is after nine months of growth. Japan’s economy grew 4.6% in the second quarter – revised up from 2.2% initially – bringing it back to pre-pandemic size.

Tuesday’s article comes as Japan faces headwinds from a weakening global economy, inflation is at its highest in decades by some measures and the yen has plummeted to its lowest level ever. dollar since 1990. An increase in infections driven by Omicrons during the summer also reduced the increase in consumer spending that began earlier this year.

While the domestic impact of Covid-19 has cooled, other economic challenges have grown. After decades of no significant price increases, Japanese companies and households are having to account for inflation caused by disruptions to global supply chains and soaring food and energy costs due to the war in Japan. Russia in Ukraine. Price increases of about 3 percent year-on-year in September were low compared with increases in many other countries, but they came as a shock to Japan, which has long been accustomed to price increases. price stability.

Adding to the pressure, the yen has fallen significantly against the dollar in the last year, forcing Japanese authorities to intervention on the money market in an attempt to increase its value.

Economists suggest that this drop could be due to the Bank of Japan’s decision to keep interest rate however, as the US Federal Reserve quickly raised its own rate in an attempt to curb rampant inflation in the country. Experts say the spread has fueled a sell-off in the yen as investors flocked to the dollar in search of higher returns.

The cheap yen has brought a number of benefits to Japanese exporters, whose products are less expensive to customers abroad, as well as to other Japanese companies with income and investment. large abroad.

But the plus seems to have been outweighed by pressure on the domestic market as businesses as well as consumers pay more for imported goods, whether raw materials or finished products.

The weakening yen created a record trade deficit for Japan. Import value increased by nearly 45% in the first half of the financial year, from April to September, due to the rapid increase in fuel prices. In contrast, exports increased by just under 20%.

Even with help from a weak yen, overseas demand is likely to weaken in the face of China’s continued “zero Covid” policies and worsening global recession. as central banks are trying to keep up with the Fed.


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