Inflation, weak yen, and risks of a global recession led to economic downturn in Japan

For the first time in a year, Japan's economy shrank unexpectedly in the third quarter. Japan's economic downturn came as risks of a global recession, a weak yen, and a sharp rise in the cost of imports weighed on both household consumption and business activity.

The recovery of the world's third-largest economy has been undermined by soaring global inflation and interest rates around the world, Reuters reported.

Japan's annualized GDP fell 1.2% in July-September compared to the median estimate of 1.1% growth and a revised 4.6% rise in the second quarter, according to official data. This led to a quarterly decline of 0.3%, while according to initial forecasts, Japan's GDP should have expected a quarterly increase of 0.3%.

In addition to pressures from inflation and a slowdown in global growth, Japan has faced the challenge of the falling yen against the dollar, which has added to the pressure on the cost of living due to further increases in oil prices.

According to Atsushi Takeda, chief economist at the Itochu Economic Research Institute, the contraction was unexpected. Takeda also added that the biggest aberration was the larger-than-expected imports. The economist says that domestic demand is not as weak as the headline figure indicates, as the three main components of demand - consumption, capital expenditure and exports - remained in positive territory, if not robust.

Economy Minister Shigeyuki Goto highlighted the global challenges facing Japan.

According to Goto, the risks of a global recession due to the tightening of monetary policy by Western countries could hit businesses and households in Japan.