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Japan’s recession could be an absolute monster

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The most important thing to know about Japan’s latest recession is how much worse conditions may get in 2020 – and beyond.

This is not the narrative coming out of Prime Minister Shinzo Abe’s government and the legions of Tokyo economists who defer to its spin. That line is it’s a “technical” recession, as if to say: “Don’t worry, better days are coming.”

There was nothing “technical” about the 7.3% plunge in gross domestic product between October and December. And that was before Japan logged its first Covid-19 case.

Nor is the 3.4% drop in first-quarter GDP a statistical anomaly. And adding up data since then, the second quarter’s contraction is looking “much worse,” says Tom Learmouth of Capital Economics.

Woeful expectations

At the moment, economists generally estimate a 21% or 22% contraction between April and June. That would be the largest about-face in growth since at least the mid-1950s.

Exports dropped by more than 20% in the first 20 days of April alone, an omen of pain to come for companies from Toyota Motor to Sony to SoftBank.

And a drop in domestic demand is its own harbinger of doom. In April, consumer confidence was weaker than amid the 2008 global crisis or the Fukushima nuclear meltdown in 2011.

Though stats on April tourism are still being tabulated, they’re likely to be worse than the 93% drop in year-on-year arrivals in March.

Even the government admits Abe’s record US$1 trillion rescue package is not enough.

On Monday, Economy Minister Yasutoshi Nishimura said growth is in a “severe state” and telegraphed another extra budget to come, and quickly. The priority is aiding small businesses to avoid mass lay-offs of the kind upending the US economy.

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