Japan, which possesses the world’s third-largest economy, stumbled in the third quarter and registered its second quarterly economic contraction this year. The economic growth contraction in Q3 was mainly due to a decline in private consumer spending and business investment.

There were several natural disasters in the third quarter which affected business activity and disrupted the country’s export capacity. While Japan’s economy is expected to bounce back into growth territory in the fourth quarter, its economic momentum depends very much on China’s own economic prospects. As is well known, China’s economy has been weakening due to its trade dispute with the US.

In line with the relatively anemic growth recorded over the first nine months of this year, Japan’s Purchasing Managers’ Index (PMI) for manufacturing fell to a two-year low of 51.8 in November 2018 from the previous month’s six-month high of 52.9. The OECD recently downgraded its economic growth projections for Japan in 2018 to 0.9% and in 2019 to 1%. Because a scheduled increase in the consumption tax next October is expected to reduce consumer demand in Japan, the OECD only projects 0.7% growth in 2020.

In closing, manufacturers’ confidence has weakened close to a two-year low, while consumer confidence has also recently deteriorated in Japan.