Japan has lost its position as the world's third largest economy after falling into recession

Japan has lost its position as the world's third largest economy to Germany as the Asian country unexpectedly entered recession, writes CNBC.

Once the world's second-largest economy, Japan yesterday reported two consecutive quarters of contraction - a 0.4% year-on-year contraction in the fourth quarter of 2023, after a revised 3.3% contraction in the quarter third. Fourth-quarter GDP massively missed economists' forecasts for a 1.4 percent increase, according to a Reuters poll, the publication said. Generally, a recession is defined as two consecutive quarters of economic contraction.

In quarterly dynamics, GDP fell by 0.1%, compared to a 0.3% increase estimated in the Reuters poll. For the full year 2023, Japan's nominal GDP rose 5.7% to 591.48 trillion yen, or $4.2 trillion based on last year's average exchange rate. On the other hand, Germany's nominal GDP rose 6.3% to 4.12 trillion euros, or $4.46 trillion based on the average 2023 exchange rate.

Nominal GDP measures the value of output in dollars, without adjustments for inflation.

After the release of the latest data on Japan's economy, Tokyo's Nikkei 225 moved higher, breaking above 38,000, as investors interpreted the economy's weakness as a sign that the Bank of Japan may be delaying its rate hike to monetary policy based on negative interest rates, according to CNBC.

"This "dire' growth picture makes policy tightening by the BOJ even more difficult," said Charu Chanana, chief foreign exchange strategist at Saxo, in a note published yesterday. According to the strategist, the contraction in GDP in the third quarter "undermines the belief that inflation is indeed driven by a virtuous cycle of rising real income and spending," writes CNBC.

The dollar has strengthened significantly against the yen this year, currently trading around 150, according to Investing.com data.