Japanese stocks have remained on the front foot despite the economy contracting now for two quarters in a row, making it the second major economy after the UK to fall into a technical recession.
Japan’s GDP contracted by 0.4% (quarter-on-quarter annualised) in the fourth quarter of 2023 after a 3.3% fall in 3Q23. The fourth-quarter decline was caused mainly by a sharp drop in consumption.
Despite the poor economic news, Japanese stocks have been gaining. The Nikkei 225 index is on track to challenge its record high from December 1989.
The disconnect between equities and the economy (see exhibit 1) comes at a time when Japan has ceded its place as the world’s third-biggest economy to Germany. The economic weakness could put paid to expectations that the Bank of Japan is about to tighten monetary stimulus this year.
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