Crushed by the yen, weak sales and floods.
The Japanese economy shrank twice as much as expected after supply disruptions caused by the Thai floods battered exports that were already affected by weak global demand and a strong currency.
The 0.6% shrinkage for the October to December period pulled the economy into its first full-year contraction since the 2009 financial crisis.
Domestic demand also weakened, a worrying sign that the anticipated economic boost from earthquake rebuilding has been slow to materialize.
The data puts pressure on the Bank of Japan (BOJ) to ease monetary policy. The central bank may respond by setting a more specific inflation goal, but is seen keeping policy on hold.
Some analysts, like Musha Research’s Ryoji Musha, expect the Japanese economy to grow again this year, as firms get past negative, but temporary factors like the flood-induced disruptions:
“First, Thailand and yen appreciation, then the weakness in China, the U.S. and so on. All those one-time negative factors turn around this quarter, or next quarter. Therefore, from a cyclical point of view, we’ll see a rather large rebound of Japanese exports, which is quite good for Japanese GDP in the short term.”
Musha also points to the improving situation in Greece, where policymakers have made progress on improving their fiscal situation.
“Looking at this year, the situation has, I think, certainly stabilized and the market may still be encouraged to take risks going forward.”
Japan’s Nikkei 225 closed 0.6% higher on Monday after Greek lawmakers approved a highly unpopular austerity bill, in return for a second bailout from the European Union and IMF.