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May 17th 2005

Japan finally escapes recession

A recession is defined as two quarters of negative real GDP growth. By definition, Japan experienced a protracted recession last year. However, the recent release of positive first quarter economic data heralded the end of negative growth. Japan’s economy grew at an annualized rate of 5.3% in the first quarter, which represents a significant increase from the past couple of years. It seems Japan’s recovery was spurred by a variety of factors. Increases in disposable income coupled with a rise in consumer confidence triggered a significant increase in consumption. Japanese consumers are notoriously frugal, hoarding disposable income in expectation of future recession. This sudden change may prove momentous, as Japan may be able to rely on internal rather than external demand as a source of future growth. In fact, Japanese exports have actually begun to decrease, due largely to the the Yen’s appreciation. BNP Paribas reports:

Net exports contributed negatively to GDP growth, cutting it by 0.1 percentage points. Real exports have fallen for the first time in more than four years, down by 0.2% q/q, while real imports were up a mere 0.5% q/q. According to customs data, the nominal drop in exports over the quarter mainly results from the fall in exports towards Asia, which roughly represent about half of Japanese total exports.

Read More: Japan: GDP growth strongly rebounded in Q1

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Posted by Adam Kritzer | in Japanese Yen | No Comments »

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