Japan's Economy Facing Contraction in 2024

Japan's Economy Facing Contraction in 2024

Shiori Tanaka
3 min read

Japan's Economy Faces Potential Contraction in 2024

Two prominent economists have done a complete turnaround, now forecasting a contraction in 2024 for Japan. This would mark the first decline since the onset of the pandemic in 2020. BNP Paribas and SMBC Nikko Securities, who were previously optimistic, are now envisioning a GDP shrinkage of 0.4% and 0.3% respectively.

This less optimistic outlook follows a revised first-quarter GDP report, revealing a sharper contraction at 2.9%, up from the initial 1.8%. This new data is causing a stir for the Bank of Japan (BOJ) as they contemplate a potential rate hike. Interestingly, around one-third of surveyed economists believe there might be a rate increase at the BOJ's upcoming meeting.

Considering these fresh figures, the BOJ may also need to adjust its fiscal year projection down to approximately 0.5% from the earlier 0.8%. Additionally, the yen has been plummeting and has hit a 38-year low, further complicating matters.

Economists are now expressing less confidence in a swift recovery in the second quarter, with some foreseeing growth slower than 2%. Thus, while a rate hike might be on the horizon, it's a precarious decision given the current economic landscape.

Key Takeaways

  • Japan's economy anticipated to contract in 2024, marking the first annual decline since 2020.
  • The first-quarter GDP contraction has been revised to 2.9%, deepening from 1.8%.
  • Economists predict that the BOJ may lower its GDP forecast to around 0.5% from 0.8%.
  • Challenges emerge for the BOJ's rate policy due to the yen's depreciation and inflation.
  • Doubts are rising over a robust economic rebound in the second quarter.


Japan's economic contraction, triggered by the revised GDP data and a weakening yen, has repercussions for BOJ policy and global markets. The direct causes include delays in pandemic recovery and inflationary pressures. Short-term effects involve potential BOJ rate hikes and market volatility, while long-term consequences could encompass sustained economic deceleration and altered international investment strategies. The entities affected range from Japanese exporters to global financial institutions, with implications for currency and bond markets.

Did You Know?

  • GDP Contraction:
    • GDP (Gross Domestic Product) represents the total monetary value of all goods and services produced within a country's borders over a specific period, usually a year. A contraction in GDP indicates a decrease in economic activity, which can signal an economic recession or slowdown. In the context of Japan's revised first-quarter GDP showing a contraction of 2.9%, this means the economy has shrunk significantly more than initially estimated, potentially impacting consumer spending, business investment, and overall economic confidence.
  • Bank of Japan (BOJ) Rate Hike Consideration:
    • The Bank of Japan (BOJ) is Japan's central bank responsible for issuing currency and implementing monetary policy. A rate hike refers to an increase in interest rates, which the BOJ can adjust to manage inflation and economic growth. In this scenario, the BOJ is contemplating a rate hike amidst a contracting economy, which is unusual as rate hikes are typically employed to cool down an overheating economy. This consideration reflects the intricacy of balancing inflationary pressures with the necessity to stimulate economic growth, especially given the yen's depreciation and the uncertain economic outlook.
  • Yen's Depreciation and Economic Impact:
    • The yen's depreciation entails the reduction in value of the Japanese yen relative to other currencies, reaching a 38-year low. This can have multiple economic impacts: it makes Japanese exports cheaper and potentially more attractive internationally, potentially boosting export-driven sectors. However, it also increases the cost of importing goods and raw materials, which can lead to higher inflation. For a country like Japan, heavily reliant on imports for energy and raw materials, a depreciating yen can exacerbate inflationary pressures and complicate monetary policy decisions, such as whether to raise interest rates.

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