Tokyo: Japan’s economy has unexpectedly contracted for the first time in a year. The rising cost of living has affected consumers and businesses. In the three months to the end of September, gross domestic product (GDP) fell by an annualized 1.2 percent.
However, economists expect the world’s third-largest economy to bounce back this year and avoid recession. “We expect a return to expansion by the end of 2022,”Japan economist Darren Tay of Capital Economics, said in a note to investors.
The Japanese economy will “benefit from an improvement in inbound tourism and a stronger trade balance. However, virus risks and rising inflation will limit the extent of the recovery”, he added. As the global economy slows and inflation rises around the world, Japan struggles as its currency depreciates against the US dollar.
The yen’s recent decline has been fueled by the difference in interest rates between Japan and the US. Since March, the U.S. central bank has aggressively raised its key interest rate as it tries to address rising costs of living.
Meanwhile, the Bank of Japan has kept its key interest rate below zero. Higher interest rates make the currency more attractive to investors. As a result, there is less demand for currencies from countries with low rates and the value of those currencies falls.