Japan's Slips into Recession Indicates the Downward Trend for the Market

22 February 2024

From the ashes of World War II, Japan’s constructive and strategic economic planning transformed into a global powerhouse of innovation with state-of-the-art technology, strengthening and leading the world in technological advancement and manufacturing. However, the tag of the world’s 2nd largest economy in 2010 slipped to 3rd position, and further deteriorating conditions of economic activity turned this position to 4th in 2024. The recession is considered one of the potential reasons for this declining position, but the spirit of innovation continues to drive its journey towards renewed prosperity.

As Japan’s economy delves into recession, businesses start diversifying their supply chain by focusing on new markets and the dwindling pillars of economic activities, along with losing consumer demands and widening the gap in the international market. Let’s understand how the recession affects the country’s exports globally.

Explore Japan’s Export Dominance Globally

The mentioned table represents Japan’s topmost export destination for the last five years (till Nov) in terms of total trade value in billions of USD, and export data are covered with top trading partners of Japan, including the world. Thoroughly going through the table, it reveals that total exports to the world in 2019 were USD 704 billion, which recovered after battling with COVID-19 in 2021, but the growth was not sustained for a long time and resulted in an overall decline in the trade of USD 600 billion in 2023. Taiwan is the only major country for Japanese exports that has witnessed a continuous upward movement, except for a marginal downfall in 2020.

***Total Trade Value per Billion USD

Japan’s Top Traded Commodities

Now, try to understand what are the major commodities exported by Japan to the world with statistical data for the last five years. Nuclear reactors, boilers, vehicles other than railways, and electrical machinery and equipment are some of the commodities whose trade value is more than USD 100 billion. The remarkable achievement of getting back on track was witnessed in the year 2021, the year after COVID-19, but the growth declined in 2022 and further declined in 2023, turning the country’s economy into a recession.

***Total Trade Value per Billion USD

Let’s bifurcate the top most exported commodities by country. If you go through the table, then you can find the USA and China as major trading partners of Japan, and the trade value for nuclear reactors, boilers, etc. is more than USD 25 billion with each country. The highest single commodity traded is vehicles other than railways, etc., with more than USD 45 billion. Look at the table for a more complete understanding.

***Total Trade Value per Billion USD

Major Reasons for Japan’s Recession

         ·       A weaker Japanese yen was a key factor in the drop to fourth place.

         ·       Continuous shrinking population

         ·       Geopolitical issues like Russia-Ukraine conflict, China-Taiwan conflict & other issues.

         ·       The global slowdown after COVID-19 and protectionist policies adopted by nations.

         ·       Negligence in economic policies.

How Can the International Market Be Affected by Japan’s Recession?

          ·       Recession may increase the fluctuation rate of the currency.

          ·       Potential harm to global trade by disruption in the supply chain.

          ·       Reduce global demand.

Recession may have a profound effect on the international market by reducing demand, disrupting supply chains, and creating an unfriendly environment for businesses, but constructive and comprehensive economic policies may revive the economy faster than other methods.