As Japan slips into recession, Germany becomes world's 3rd biggest economy

Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world's third-biggest economy to Germany and raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy. A difficult road to economic recovery is indicated by weak demand in China, slow consumption, and production halts at a Toyota Motor Corp (7203.T) business, according to some experts, who are predicting another decline in the current quarter.

Government figures released on Thursday revealed that Japan's gross domestic product (GDP) declined by an annualized 0.4% in the October–December quarter following a 3.3% decline in the previous quarter, defying market expectations for a 1.4% growth. A technical recession is often defined as two consecutive quarters of decline.

The Bank of Japan's prediction that growing wages will support consumption and sustainably contain inflation around its 2% target may be called into question in light of the poor statistics, even if many experts still expect the bank to phase off its enormous monetary stimulus this year.

Economy minister Yoshitaka Shindo stressed the need to achieve solid wage growth to underpin consumption, which he described as "lacking momentum" due to rising prices.

"Our understanding is that the BOJ looks comprehensively at various data, including consumption, and risks to the economy in guiding monetary policy," he added. The yen was steady following the release of the data and last stood at 150.22 per dollar, pinned near a three-month low hit earlier in the week. 

On a quarterly basis, GDP slid 0.1% against median forecasts of a 0.3% gain, and compared with a 0.8% contraction in the previous quarter.

• Japan
• Germany
• Recession