Recession: Germany overtakes Japan as the third-largest economy

Because of weak domestic demand, Japan’s economy shrank for a second quarter before abruptly entering a recession. This led some observers of the central bank to reevaluate when the country’s negative interest rate policy would terminate.

The Cabinet Office said on Thursday that the GDP shrank at an annualized rate of 0.4% in the last three months of the previous year, which was a revision to the 3.3% decline in the previous quarter.According to the research, Japan’s economy shrank to become the fourth biggest in the world last year in terms of dollars, and both people and corporations reduced spending for a third consecutive quarter. Germany now boasts the third-largest economy in the world.

Out of 34 economists questioned, just one predicted a decrease for the quarter; the consensus was 1.1% increase. Following the announcement, overnight swaps revealed that markets were pricing in a roughly 63% possibility of a hike by the Bank of Japan by April, down from 73% the day before. The BOJ’s argument for the first rate rise in Japan since 2007 would be made more difficult by the less-than-expected outcome, which most analysts polled last month anticipated the bank would take by April.

The economist of Norinchukin Research, Takeshi Minami, said that “this is a headwind for the BOJ.” “… there was a feeling that the BOJ will end the negative rate in March or April, but a north wind is now blowing.” The policy board of the Bank of Japan has intensified its deliberations over the withdrawal from the subzero rate policy, aiming to reassure investors that a raise in interest rates would not signify a drastic change in strategy. According to Governor Kazuo Ueda, even when the negative interest rate period ends, financial conditions in Japan would be supportive for the time being.