Japan’s Economy Slips Into Recession and to No. 4 in Global Ranking

The Japanese economy contracted at the end of last year, defying expectations for modest growth and pushing the country into a recession.

Japan’s unexpectedly weak economy in the fourth quarter was the result of a slowdown in spending by businesses and consumers who are grappling with inflation at four-decade highs, a weak yen and climbing food prices.

The end of the year also marked a moment that had been expected: Japan’s economy, now slightly smaller than Germany’s, fell one notch to become the world’s fourth-largest economy.

On an annualized basis, gross domestic product fell 0.4 percent in October through December after a revised 3.3 percent decline in the previous three-month period. Economists had been forecasting fourth-quarter growth of around 1 percent.

The figures cloud the outlook for Japan’s economy. Corporate profits are at record highs, the stock market is surging and unemployment rates are low. But consumer spending and business investment — two key drivers for the economy — are lagging.

Shinichiro Kobayashi, principal economist at Mitsubishi UFJ Research and Consulting, said the economy is “polarized” because of higher prices. When corporate profits jump, the prices of goods also go up, but wages have not kept up and consumers are reluctant to spend, he said.