The economy of Japan contracted in the year's third quarter as investments in businesses fell, confirming the predictions made by many economists that the country has fallen into recession.
The recession is the second since Shinzo Abe took hold of the Prime Minister position in the country in December of 2012, and the fifth time in seven years.
Japan's economy, the third-largest in the world, shrank an annualized 0.8 percent from the July to September period, which is more than the forecast of 0.2 percent. This follows the 0.7 percent contraction in the second quarter.
With two consecutive quarterly contractions, Japan's economy fulfilled the technical definition of a recession. With this being the fifth time of Japan entering recessions since 2008, the country has now completed a "quintuple dip" for the first time in its history.
But what is a recession? Simply put, during a recession, economic activities suffer a massive slowdown or contraction, usually due to a significant decrease in spending.
Such slowdowns in economic activities could last for several quarters, which would hamper a country's economic growth. During a recession, indicators of the economy such as the country's gross domestic product, employments, corporate profits, and others, fall.
In response, countries suffering from recessions should loosen monetary policies to infuse more money into its economy, such as by increasing its money supply. Methods that countries in recession can do include the reduction of interest rates, an increase in the spending of the government and lower taxes.
With Japan's economy sliding into recession due to business investments being hurt by uncertainty in overseas outlook, the country's policymakers will be pressured to deploy new measures that would stimulate Japan's economy.
While there is currently a rebound in the country's private consumption and export levels, many analysts are expecting that the Japanese economy would only moderately grow in the fourth quarter as companies continue to hesitate to utilize their record profits for measures such as wage hikes. This underscores the challenges that Abe faces in pulling up Japan's economy with his famous "Abenomics" stimulus policies.
"Abenomics," which centers on aggressive stimulus by the country's central bank, has been able to lift the country's stock market and lower the exchange rate of the Japanese yen, which is beneficial for multinational Japanese companies that make most of their profits from overseas locations. However, the policies have not been successful in reaching its goals of increasing the people's incomes, investment and spending.
