In the 1990s, Japan's asset bubble burst, thus entering the "lost decade".

Until now, Japan's economy is still struggling, and economic growth is basically stagnant: in 2021, Japan's GDP will be $4.94 trillion, while 28 years ago in 1994, Japan's total GDP was $5 trillion...

Koo Chaoming, chief economist at Nomura Securities, previously believed that Japan was facing a "balance sheet recession", in which asset prices fell after the economic crisis and Japanese companies' debt-to-asset ratio was greatly damaged.

In the post-epidemic era of 2022, affected by multiple negative factors such as geopolitics and epidemic harassment, this country with a high degree of external dependence is still walking at a lost crossroads.

On November 15, the Japanese Cabinet Office released the preliminary estimate of gross domestic product (GDP, seasonally adjusted value) for the third quarter of 2022 (July to September), and the real GDP after adjusting for price changes decreased by 0.3% from the previous quarter, translating into an annual decrease of 1.2%. It was the first negative growth since the third quarter of last year.

Economists had generally forecast growth of about 1.2 per cent in the third quarter. Japan's poor economic record this time is not surprising.

As we all know, Japan and Germany are the third and fourth largest economies in the world. But with Japan's economy in the doldrums, the gap between German and Japanese GDP has narrowed. In the first half of this year Germany's GDP was $20,500, up 2.7% from a year earlier; Japan's GDP was $2.19 trillion, up just 0.9% from a year earlier. In the third quarter of this year, Germany's GDP grew by 0.3% compared with the previous quarter, dodging recession. The third quarter GDP of Germany and Japan increased and decreased, indicating that Japan's economic aggregate in the world's "third place" is also difficult to protect.

Why was Japan's economy so weak in the third quarter? We look at three reasons for this.

The trade deficit is worrying

In 2021, Japan's imports and exports increased by more than 20% year-on-year, which is a commendable performance.

However, in 2022, Japan's trade deficit phenomenon is becoming increasingly severe, and the negative growth of imports and exports has become the main factor dragging down Japan's GDP growth. In the first half of the year, Japan's trade deficit was Y11tn, the highest since 1979, when comparable data began.

In the third quarter of this year, imports rose 5.2% from the previous quarter, but exports rose only 1.9%. Last month, Japan's Finance ministry reported a trade deficit of 2.094 trillion yen in September, the 14th consecutive month of deficits. This reflects the negative impact of multiple factors such as slowing global economic growth and the Russia-Ukraine conflict on Japan.

Japan's NHK television said that high resource prices and the continued depreciation of the yen caused Japan's imports to increase, but export growth was suppressed.

Japan's air cargo exports, for example, fell 15 per cent in August from a year earlier, and have been below year-on-year levels for eight consecutive months.

The sharp fall in the yen increases energy costs

Bloomberg analysis said that Japan's third-quarter data fully reflected the negative impact of the yen's slump on the economy, when the yen fell rapidly, companies faced a difficult situation, they were hit by the rising cost of raw material imports, in the context of slowing overseas economies and can not easily pass on the cost to exports.

This year, the dollar-yen exchange rate has soared from 110 at the beginning of the year to 120, 130, 140 and even 150. On Tuesday (November 15), as of press time, the dollar was trading at 139.79 yen, still near a record high.

Currently, the Japanese yen is the most depreciated major world currencies against the US dollar since the beginning of 2022. In the context of the sluggish economic boost in Japan, it further caused a negative cycle of yen depreciation.

High resource prices have squeezed the operating space of Japanese companies, and with the rising prices of imported and exported raw materials and energy, Japan is facing greater inflationary pressure.

Recently, the data released by the Bank of Japan showed that due to the continuous surge in the price of imported goods and the sharp depreciation of the yen, the Japanese enterprise price index rose for 20 consecutive months, and rose 9.1% in October to 117.5, a new high since the statistics.

Weak private consumption

Japan's domestic private consumption market is an important growth engine of the Japanese economy, and half of its GDP comes from national consumption. However, due to the depreciation of the yen and the impact of inflation, the Japanese people's spending power has been greatly suppressed.

The recent grim situation of the COVID-19 pandemic in Japan has exacerbated the downward trend in consumer demand. In the third quarter of this year, Japan's personal consumption rose only 0.3 per cent from the previous quarter, and domestic consumer demand remains weak. Among them, transportation and accommodation related areas of growth was weak, and durable consumer goods fell 0.5 percent from the previous month.

Behind this, Japan's national income level has started to "reverse".

With the Fed raising rates this year, Japan's GDP per head has fallen back to 1990s levels.

Japan's third-quarter GDP growth was negative, dragged down by three reasons

According to the IMF's forecast, Japan's per capita GDP will be $34,360 in 2022; In 2021, Japan's per capita GDP will be $39,300, compared with $39,900 in 1994. This year, Japan's per capita GDP is expected to fall by about 12.6 per cent from last year and by about 13.9 per cent from 1994.

As incomes fall, Japanese people have to tighten their belts, which is why consumer durables, which are not very strong in demand, showed negative growth in the third quarter compared with the previous quarter.

Source: Caihua Society, Hong Kong