Japan has unexpectedly fallen into a recession after its economy shrank for two quarters in a row, with a 0.4% contraction in the last three months of 2023. This comes after a 3.3% decline in the previous quarter. The latest figures from Japan's Cabinet Office suggest that the country may have lost its position as the world's third-largest economy to Germany. The IMF forecasted that Germany was likely to overtake Japan as the world's third-largest economy when measured in US dollars in October.
The latest figures show Japan's economy was worth about $4.2tn (£3.3tn) in 2023, while Germany's was $4.4tn. This was due to the weakness of the Japanese currency against the dollar, which has helped boost share prices of some of Japan's biggest companies as it makes exports cheaper in overseas markets. The Nikkei 225, Tokyo's main stock index, crossed the 38,000 mark for the first time since 1990, when a collapse in property prices triggered an economic crisis.
The latest GDP data may also mean that the country's central bank may delay a decision to raise the cost of borrowing. The Bank of Japan introduced a negative interest rate in 2016 to boost spending and investment, making the yen less attractive to global investors, which has pushed down the currency's value.
