3 graphs on the Japanese recession

The Japanese economy is back into recession. After the deep drop of the second quarter due to the VAT rate hike on April the first, the negative momentum has not been reversed. (see chart 1).
GDP dropped by -1.6% at annual rate in the third quarter after -7.3% during the second quarter. Compared to Q3 2013 GDP is down by -1.1%. Carry over growth for 2014 is still positive but by a mere 0.2%.
It seems that Shinzo Abe has postponed the second VAT rate hike that was scheduled for October 2015. He is right as in a very weak global environment, the Japanese economy will have to find resources in itself to converge to a growth trajectory. A new negative shock is not necessary.
It will be complicated for Japan to escape to a long recession. From my point of view, we can expect a recession of several quarters. In 1997 after the VAT rate hike, the shock was milder than the current one but the recession lasted 5 quarters.
The very accommodative monetary policy can help to recover. Weaker yen and negative real interest rates will help.
In details (see 2nd graph), there was a small rebound in consumption during the third quarter (+1.5% annual rate) after -18.6% during Q2. Investment was down again in the third quarter: -2.2% after -16.6%. Due to a positive contribution from government expenditures, internal demand had a small positive contribution: +0.65% versus -14.7% in Q2. (see 3rd graph)
Net export has a positive contribution as exports regain a stronger momentum. But contribution from inventories was negative. Companies has accumulated inventories in Q2 but reverse the movement in Q3. That explains the fall into recession of the Japanese economy
Japan-2014-Q3-GDP-trendJapan-2014-q3-ContribJapan-2014-Q3-Int-Demand

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