Japan’s economy, the world’s third-largest, contracted at an annual pace of 2.1% in the third quarter of 2023. This contraction, marked by weakened consumption and investment, represents a significant downturn from previous quarters. Notably, private consumption shrank by 0.2%, and corporate investment fell by 2.5%. Experts, including Marcel Thieliant of Capital Economics, foresee a continued slowdown, with GDP growth projected to drop from 1.7% this year to 0.5% in 2024.
In response, Prime Minister Fumio Kishida has unveiled a stimulus package exceeding 17 trillion yen to support low-income households and counter surging prices. The package includes tax breaks and benefits, aiming to revive the economy amidst global inflation and a weakening yen.
Despite earlier recoveries in tourism and exports, Japan faces enduring challenges, including an aging population and deflation. The Bank of Japan maintains its super-easy monetary policy, indicating that interest rate hikes are unlikely in the near future.
Q1. Define ‘economic contraction’.
Q2. Explain the impact of weak consumption and investment on Japan’s economy.
Q3. Analyse the expected outcomes of Prime Minister Kishida’s stimulus package.
Q4. Discuss the long-term challenges faced by Japan’s economy, such as deflation and an aging population.
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