TOKYO — Japan has slipped into recession mode.
The country’s third-quarter gross domestic product contracted 0.8 percent on annualized basis, according to data released Monday by Japan’s Cabinet Office. The country’s economy slid 0.2 percent on a quarterly basis in the July-to-September period after shedding the same amount in the second quarter.
Two consecutive quarterly contractions of GDP is considered a technical recession. On the upside, private consumption appears to be faring relatively well. It actually grew 0.5 percent in the third quarter after sliding 0.6 percent in the second quarter. But some analysts said that this is not necessarily due to positive consumer sentiment.
“There is a perception among consumers that prices have risen to relatively high levels and this has had a dampening effect on consumer confidence, but we think improvements in the income environment was behind the upturn,” wrote research analyst Tomo Kinoshita of Nomura.
Hiromichi Shirakawa and Takashi Shiono, economic researchers for Credit Suisse, seemed to agree with this assessment, writing that “gradual recovery in household income condition suggests that ongoing moderate recovery in personal consumption should be robust.”
Naohiko Baba, chief economist for Goldman Sachs Japan, also forecast a further recovery of consumption.
“While our October-December GDP outlook calls for growth on a mild recovery in consumption, we expect it to be limited to just under +1.0 [percent quarter-on-quarter] in light of the instability of foreign demand and Capex.”
In recent months, retailers in Japan have been performing well, thanks in part to strong tourist flows from Asia. Fast Retailing and department store operators like Isetan Mitsukoshi Holdings saw higher sales in October. LVMH Moet Hennessy Louis Vuitton said it saw very strong double-digit sales growth in Japan in the third quarter. Hermes also reported a double-digit jump in third-quarter sales in Japan.
Some observers are cautiously optimistic that the economy will see a slight uptick in the fourth quarter.
“We expect the Japanese economy to recover gradually from October to December. Given the strength of inventory adjustments in July to September, we think it is unlikely any further adjustments will trip up GDP growth. We look for private consumption and exports to increase gradually, but also look for a turnaround in private-sector capex on improved corporate profits and labor shortages,” Kinoshita wrote.