Japan reported a 1.6% annualized decline in real gross domestic product (GDP) in the third quarter of 2014 over the weekend of November 14 – 16,2014. Policymakers in Japanese Prime Minister Shinzo Abe’s government
and at the Bank of Japan (BOJ), as well as most market participants, expected a solid gain in GDP in Q3, not a decline. The consensus of economists polled by Bloomberg News was looking for a 2.2% gain in GDP
in Q3, after the Japanese economy contracted more than 7% in Q2 2014 in response to a big value-added tax (VAT) increase imposed in April 2014. (We’ll discuss the VAT in more detail below.) As a result of the unexpected
decline in GDP in Q3, Japan’s economy has met the unofficial definition of recession (i.e., two consecutive quarters of negative GDP) and has entered its fourth recession since 2007. How long Japan’s economy remains in recession — and more
importantly, the policy response to the latest recession — may help to determine the trajectory of global growth in 2015 and beyond….