Japanese Recession Harms Global Outlook
European indices dropped on Monday following Japan’s surprise decline into recession.
Tuesday, November 18, 2014 - 00:00
Tokyo’s Nikkei index lost 3.0% today, fueling economists’ anxiety over a weak global economy.
“It’s official, Japan is now in recession,” Jasper Koll, head of Japan equity research at JPMorgan Chase & Co., told Bloomberg. “Monetary policy is already on full blast to counter against the recession. The next move is fiscal policy, with the delay in the VAT hike next year now a virtual certainty.”
Major indices in Europe were lower across the board. The Stoxx Europe 6000 was 0.3% lower in early trading. Germany’s DAX fell 0.3%, France’s CAC 40 lost 0.1% and the UK’s FTSE 100 declined 0.2%.
Japanese economy contracts in the third quarter
According to The Wall Street Journal, Japan’s economy shrank for the second consecutive quarter. Gross domestic product slipped by a 1.6% annual rate in the third quarter after a 7.3% reduction in the second quarter.
“The numbers really disappointed,” Hiroyuki Fukunaga, CEO at Investrust, told The Wall Street Journal. “The selling appears to be a mix of utter frustration at the government’s handling of the economy and moves by hedge funds employing a ‘sell-on-the-news’ strategy that may have been in place regardless of the GDP data.”
Japanese Prime Minister Shino Abe is widely expected to delay his sales tax hike, originally scheduled for sometime next year. The last sales tax increase of last April 2014 led to the worst economic contraction in Japan for over five years, according to Bloomberg. Abe is likely to hold an election on December 14 to determine the public outlook on a new tax hike.
The US stock market also opened lower amid the weak Japanese outlook. The S&P 500 fell 0.1%, the Dow fell 0.1% and the Nasdaq lost 0.2%.
Investors were already pessimistic toward the global economic outlook, and the new data from Japan certainly did not help matters.
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