TOKYO, Nov. 16 (UPI) — Economic data released Monday indicated Japan’s economy had contracted at an annualized 0.8 percent between July and September, yielding the two consecutive quarters required to mark an official recession in the world’s third-largest economy.
The dwindling economy, however, has not affected the stock market’s performance. Bloomberg reported the Nikkei 225 stock average rose 12 percent through last week, as corporate profits have benefited from the weakening of the Japanese yen against the dollar.
Japan is entering its first technical recession in five years, and following the announcement Tokyo’s Economics Minister Akira Amari said a scarcity of workers in public projects have hampered growth. The shortage is due to a lack of skilled labor,The Guardian reported.
The recession presents a major setback for Abenomics, Japanese Prime Minister Shinzo Abe‘s policy of bolstering growth in a mature economy that has spiraled into deflation since the early 1990s. Abe’s reform included bolstering fiscal spending, and Japan’s central bank has lowered borrowing costs, but structural reforms have proved to be challenging.
Amari, who urged Japanese companies Monday to use their cash holdings to raise wages and capital spending, did say the long-term outlook could improve, and growth could return.
“While there are risks such as overseas developments, we expect the economy to head toward a moderate recovery thanks to the effect of the various [stimulus] steps taken so far,” Amari said.
Other analysts are not so sure, and the Nikkei’s rally does not mean corporate earnings are not susceptible to the downturn.
“A growing number of investors are taking a more cautious, cynical view of the Japanese economy and stock market,” UBS economist Daiju Aoki and strategist Tomohiro Okawa wrote in a Nov. 10 report. “The phase of investors blindly ‘buying because stocks are rising, and stocks rising because of buying’ has ended.”