Japan might be in a technical recession already
Gross domestic product (GDP) may have contracted 0.2% in the April-June quarter on an annualized basis adjusted for inflation, Mizuho Research & Technologies said in the report.
'Given consumer sentiment and wage trends, it's likely that consumption remained weak and dragged down the overall economy,' said Saisuke Sakai, chief economist at Mizuho Research & Technologies, who wrote the report.
In the January-March quarter, real GDP shrank by 0.2%.
A recession is commonly defined as two consecutive quarters of negative GDP growth, though officially calling a recession depends on a wider range of indicators.
In Japan, recessions are determined by the Cabinet Office's Economic and Social Research Institute (ESRI).
The ESRI bases its assessment on a monthly coincident index that has ten components, including industrial production, retail sales and exports, according to a report by the Conference Board.
Two quarters of negative GDP growth alone is usually referred to as a technical recession.
Sakai pointed out the economy remained weak in the April-June quarter.
Inflation was above 3% every month in that quarter, with food inflation topping 6%. Pay increases lagged price increases for a fifth straight month in May.
Consumer sentiment was very weak, according to a Bank of Japan survey released earlier this month.
In that report, the diffusion index on living conditions was minus 57.2, the worst reading in nearly 16 years. The index is calculated by subtracting the percentage of people who said living conditions have worsened from the percentage who said conditions have improved.
'This survey was quite shocking," Sakai said. "It seems people are really feeling their living conditions have become tougher due to three consecutive years of declining real wages."
The government is scheduled to announce GDP data for the April-July quarter on Aug. 15.
Japan may have fallen into a technical recession, but there is no need to be overly pessimistic about the economic situation, Sakai said.
The projected contraction of minus 0.2% is quite small, while Japan's potential growth rate is believed to be only in the low-to-mid 0% range, he noted.
'I'd say the Japanese economy has yet to face an economic downturn. For the Japanese economy, this level of negative growth is within the realm of normal fluctuations,' Sakai said.
The last time Japan experienced a technical recession was when GDP fell for three consecutive quarters from mid-2023 to early 2024.
Since the report by Mizuho Research & Technologies was issued, Japan and the United States achieved a breakthrough in trade talks, and this could be a net positive for the economy.
The new 'reciprocal' tariff rate for exports to the United States will be set at 15%, and the rate on cars will be 12.5%. The 50% tariff on steel and aluminum products will remain unchanged.
Politics is the main wildcard.
The Liberal Democratic Party-Komeito coalition no longer has control of either of the houses in parliament after a drubbing in Sunday's Upper House election, and media reported Wednesday that Prime Minister Shigeru Ishiba is set to step down by the end of August, although the prime minister denied the report.
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