Japan is CRASHING and it’s Spreading to the Rest of the World

Summary

Japan’s leading economic indicator has dropped to its lowest level since October 2020, raising concerns about a recession, attributed to a global slowdown impacting economies worldwide, including Germany, Europe, and Mexico. Japan’s government and central bank are cautious about rate hikes due to uncertainties in the U.S. economy, while slowing exports, rising inventory ratios, and job market freezes further hint at a cyclical downturn. The report underscores global interdependence, with economies experiencing synchronized slowdowns, particularly in manufacturing, amid ongoing challenges from the global recession since late 2022.

Takeaways

• 📉 Japan's leading economic indicator dropped to its lowest level since October 2020, signaling a potential recession.
• 🌍 Global economic weakness, including in the US, Europe, and Mexico, is a major factor in Japan's economic slowdown.
• 🇯🇵 The Japanese government is concerned about a cyclical turn into contraction and recession, as indicated by the drop in exports and trade data.
• 🏦 Japan's central bank halted rate hikes, citing uncertainty in the global economy, particularly in the United States.
• 📊 The coincident economic indicator also showed signs of rolling over, confirming the potential downturn in Japan's economy.
• 🔄 Japan is experiencing a traditional recession now, following the supply shock recession of 2023.
• 🚢 Japan's exports to the US saw their first contraction in three years, indicating growing weakness in global trade.
• 💼 The labor market in Japan is slowing, with new job offers declining and construction activity decreasing.
• 💡 M2 money supply growth has decelerated significantly, with the lowest annual change since 2007, pointing to tighter credit conditions.
• 🇲🇽 Mexico's economy is also weakening, impacted by global trade issues, competition from China, and uncertainty in the US economy.

Q & A

What caused Japan's leading economic indicator to drop to its lowest level since October 2020?

The drop in Japan's leading economic indicator was due to global economic weakness, with several factors contributing, including a slowdown in global trade, higher inventory ratios in manufacturing, lower Japanese government bond yields, and a decline in exports to the United States.

How does global economic weakness affect Japan's economy?

Japan's economy is highly sensitive to global economic conditions, particularly due to its dependence on global trade. Weakness in key economies like the United States and China directly impacts Japanese exports, manufacturing, and overall economic performance, leading to a synchronized global downturn.

What actions did the Bank of Japan take in response to the economic situation?

The Bank of Japan decided not to pursue further rate hikes, citing uncertainty in the global economy, particularly in the U.S. The bank's caution reflects concerns over the global financial instability and its impact on Japan's fragile economic recovery.

Why did the Japanese government use the term 'halting to fall' regarding the economy?

The Japanese government used the term 'halting to fall' to describe a cyclical downturn in the economy, signaling that the economy was moving toward contraction. This phrase typically indicates the recognition of an impending recession.

What role does Japan's trade relationship with the U.S. play in its economic performance?

Japan's economy is closely tied to U.S. demand for exports. In 2024, Japan experienced its first decline in exports to the U.S. in three years, signaling weaker demand. This decline in trade volume contributed to the broader economic slowdown in Japan.

How is the global recession impacting Japan's labor market?

The global recession has led to a slowdown in Japan's labor market, with fewer new job offers and hiring freezes. This is part of a broader global trend of economic uncertainty and reduced hiring in key sectors, such as manufacturing.

What were the main components that worsened Japan's leading economic indicator in August 2024?

Key components that worsened the leading economic indicator include higher inventory ratios in manufacturing, declining job offers, lower government bond yields, and a drop in stock market performance. The overall economic slowdown was also reflected in a decrease in M2 money supply growth.

Why is Japan's recession in 2024 considered more traditional compared to 2023?

In 2023, Japan's recession was driven by supply shocks and rising consumer prices, which led to reduced household spending. In 2024, the recession is more traditional, marked by broader economic factors like global trade slowdowns and weakening demand in key industries.

What does the decline in Japan's exports to the U.S. signify for its economy?

The decline in Japan's exports to the U.S. signifies weakening demand from one of Japan's largest trading partners. This drop in exports is a clear sign of economic trouble, as Japan relies heavily on trade for its economic growth, and the global recession is limiting this crucial source of revenue.

How is Mexico's economic situation related to Japan's economic downturn?

Mexico is experiencing a similar economic slowdown, driven by global factors such as competition from China and weakening demand from the U.S. Like Japan, Mexico's manufacturing sector is facing declining business conditions, and its central bank is lowering interest rates in response to the global recession.