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TOKYO — Japan unexpectedly slipped into a recession at the end of last year, losing its title as the world’s third-biggest economy to Germany and raising doubts about when the central bank would begin to exit its decade-long ultra-loose monetary policy.

Some analysts are warning of another contraction in the current quarter as weak demand in China, sluggish consumption and production halts at a unit of Toyota Motor Corp all point to a challenging path to an economic recovery.

“What’s particularly striking is the sluggishness in consumption and capital expenditure that are key pillars of domestic demand,” said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.

“The economy will continue to lack momentum for the time being with no key drivers of growth.”

Japan’s gross domestic product (GDP) fell an annualized 0.4% in the October-December period after a 3.3% slump in the previous quarter, government data showed on Thursday, confounding market forecasts for a 1.4% increase.

Two consecutive quarters of contraction are typically considered the definition of a technical recession.

While many analysts still expect the Bank of Japan to phase out its massive monetary stimulus this year, the weak data may cast doubt on its forecast that rising wages will underpin consumption and keep inflation durably around its 2% target.

“Two consecutive declines in GDP and three consecutive declines in domestic demand are bad news, even if revisions may change the final numbers at the margin,” said Stephan Angrick, senior economist at Moody’s Analytics.

“This makes it harder for the central bank to justify a rate hike, let alone a series of hikes.”

Economy minister Yoshitaka Shindo stressed the need to achieve solid wage growth to underpin consumption, which he described as “lacking momentum” due to rising prices.

“Our understanding is that the BOJ looks comprehensively at various data, including consumption, and risks to the economy in guiding monetary policy,” he told a news conference after the data’s release, when asked about the impact on BOJ policy.

The yen JPY was steady following the release of the data and last stood at 150.22 per dollar, pinned near a three-month low hit earlier in the week.

The Nikkei N225 rose 0.8%, reversing some of its losses made from the previous session, possibly on expectations the BOJ may continue with its massive easing program for longer than expected.

On a quarterly basis, GDP slid 0.1% against median forecasts of a 0.3% gain, and compared with a 0.8% contraction in the previous quarter.

Consumption, capital expenditure weak

Private consumption, which makes up more than half of economic activity, fell 0.2%, weaker than a market forecast for a 0.1% gain, as rising living costs and warm weather discouraged households from dining out and buying winter clothes.

Capital expenditure, another key private-sector growth engine, fell 0.1%, compared with forecasts of a 0.3% gain, as supply constraints delayed construction projects.

External demand, or exports minus imports, contributed 0.2 percentage point to GDP as exports rose 2.6% from the previous quarter, the data showed.

The BOJ has been laying the groundwork to end negative rates by April and overhaul other parts of its ultra-loose monetary framework but is likely to go slow on any subsequent policy tightening amid lingering risks, sources have told Reuters.

While BOJ officials have not offered clues on when exactly they could end negative rates, many market players expect such an action to happen either in March or April. A Reuters poll taken in January showed April as the top choice among economists for the negative rate policy to be abandoned.

Some analysts say Japan’s tight labor market and robust corporate spending plans are keeping alive the chance of an early exit from ultra-loose policy.

“While the second consecutive contraction in GDP in Q4 would suggest that Japan’s economy is now in recession, business surveys and the labor market tell a different story. Either way, growth is set to remain sluggish this year as the household savings rate has turned negative,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

“The (BOJ) has been arguing that private consumption has ‘continued to increase moderately’ and we suspect that it will continue to strike an optimistic tone at its upcoming meeting in March,” Thieliant said, sticking to his projection the bank will end its negative interest rate policy in April.
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Harare, Zimbabwe — Zimbabwe’s government said Monday it is introducing a gold-backed currency to replace the country’s nearly worthless dollar, which most businesses have shunned, preferring the U.S. dollar or South African rand.

Minister for Finance and Economic Development Mthuli Ncube told reporters in an online press conference that Zimbabwe was making the move to ensure sustained growth.

“Really this is a quest for currency stability,” Ncube said. “What has emerged over the years is the U.S. [dollar] being the most dominant.

“Going forward, we want to make sure that the growth we have achieved so far — which is very strong — is maintained and even increased,” he said. “We can only do that if we have further stability in the domestic currency. … And the way to do that is perhaps to link the exchange rate to some hard asset such as gold.”

He did not say when Zimbabwe will introduce the gold-backed currency.

Since Zimbabwe’s independence in 1980, the country has introduced new currencies several times after citizens and businesses shunned the previous money.

The present-day currency, known as the dollar, bondnotes or ZWL, was introduced in 2014. Within months it started losing value, something economists attributed to the government overprinting notes and businesses failing to have confidence in the currency.

It now trades at 20,000 for 1 U.S. dollar.

Prosper Chitambara, a senior economist with the Labor and Economic Development Research Institute of Zimbabwe, said the move will help control money supply.

“It also helps to stabilize the value of the currency because, ultimately, the value of the currency would be determined to a greater extent by the value of gold,” he said. “On paper, it sounds [like] a good idea to link your currency to an underlying asset such as gold.”

Ultimately, Chitambara said, Zimbabwe needs to exercise fiscal responsibility if it wants a stable domestic currency.

“We need to ensure fiscal sustainability through ensuring there is fiscal discipline, fiscal consolidation, restructuring public spending with a view of eliminating waste and nonproductive spending,” he said.

Also, he said, it is important to ensure monetary discipline through controlling supply and making institutional reforms to address waste and inefficiencies in public enterprises.

Zimbabwe “has been losing money through subsidizing loss-making parastatals and entities,” he said, referring to state-owned companies.

Steven Dhlamini, an economics professor at National University of Science and Technology, said the success of the change will also hinge on whether people have confidence in the gold-backed currency — “whether they believe the government will indeed be transparent and accountable as to the production of the gold viz-a-vis the printing of the currency.”

“So once the trust is established, then that is critical in ensuring the currency will be acceptable and will be stable,” he said.
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WASHINGTON — Annual inflation in the United States cooled last month yet remained elevated in the latest sign that the pandemic-fueled price surge is gradually and fitfully coming under control. 

Tuesday’s report from the Labor Department showed that the consumer price index rose 0.3% from December to January, up from a 0.2% increase the previous month. Compared with a year ago, prices are up 3.1%. 

That is less than the 3.4% figure in December and far below the 9.1% inflation peak in mid-2022. 

The latest reading is well above the Federal Reserve’s 2% target at a time when public frustration with inflation has become a pivotal issue in President Joe Biden’s bid for re-election. 

Excluding the volatile food and energy categories, so-called core prices climbed 0.4% last month, up from 0.3% in December and 3.9% over the past 12 months. Core inflation is watched especially closely because it typically provides a better read of where inflation is likely headed. The annual figure is the same as it was in December. 

Biden administration officials note that inflation has plummeted since pandemic-related supply disruptions and significant government aid sent it soaring three years ago. And a raft of forward-looking data suggests that inflation will continue to cool. 

Still, even as it nears the Fed’s target level, many Americans remain exasperated that average prices are still about 19% higher than they were when Biden took office. 

The mixed data released Tuesday could reinforce the caution of Fed officials, who have said they’re pleased with the progress in sharply reducing inflation but want to see further evidence before feeling confident that it’s sustainably headed back to their 2% target. Most economists think the central bank will want to wait until May or June to begin cutting its benchmark rate from its 22-year-high of roughly 5.4. 

The Fed raised its key rate 11 times from March 2022 to July of last year in a concerted drive to defeat high inflation. The result has been much higher borrowing rates for businesses and consumers, including for mortgages and auto loans. Rate cuts, whenever they happen, would eventually lead to lower borrowing costs for many categories of loans. 

In the final three months of last year, the economy grew at an unexpectedly rapid 3.3% annual rate. There are signs that growth remains healthy so far in 2024. Businesses engaged in a burst of hiring last month. Surveys of manufacturing companies found that new orders rose in January. And services companies reported an uptick in sales.
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NEW YORK — How much choice is too much?

Apparently for Coca-Cola, it’s about 400 different types of drinks.

That’s why the beverage company recently decided to discontinue half of them, shedding brands like Tab, Zico coconut water, Diet Coke Fiesty Cherry and Odwalla juices but still leaving about 200 others to choose from.

It’s a move that other businesses are making as well, reducing the variety of offerings from mayonnaise to cereals to cars and instead focusing on what they think will sell best.

Stew Leonard’s, a supermarket chain that operates stores in Connecticut, New York and New Jersey, now has 24 cereal flavors or types, down from 49 in 2019. Edgewell Personal Care Co., the maker of Schick razors and Banana Boat suntan lotion, has trimmed certain varieties of its anti-bacteria wipes Wet Ones, among others. And Dollar General, based in Goodlettsville, Tennessee, used to stock six different kinds of mayonnaise on its shelves and is now looking to drop a couple of them.

“The consumer is not going to know the difference,” Todd J. Vasos, CEO of Dollar General, told analysts in December. “Actually, it’s going to make her life a little simpler when she goes to the shelf.”

Just a year ago, Kohl’s store in Clifton, New Jersey had tables stacked high with sweaters and shirts in a rainbow of colors as well as dress racks crammed with a wide assortment of styles. Now, it boasts a more edited approach — tables have slim piles of knit shirts that focus on fewer colors, and many dress racks have been reduced to just three or four styles.

Under its new CEO Tom Kingsbury, Kohl’s has been cutting back on the colors and variations of sweaters, jeans and other items, while sending their buyers into the New York market more frequently to bring in fresh trendy merchandise.

“We would go out, and we would buy a lot of goods and it would come in 12, 14 months later, and it didn’t perform very well,” Kingsbury told analysts in a call in November. “We’re going to be using the marketplace, so that we can react to the business quickly, getting into trends.”

Some customers like the changes so far.

“It’s pretty organized,” said Kimberly Ribeiro, 30, who was at the Kohl’s store on a recent Friday. “If it’s not so cluttered, then you don’t get overwhelmed.”

Even in the auto world, shoppers are finding fewer choices. Both General Motors and Ford have been touting how they are limiting the number of option combinations customers can get on their vehicles to reduce manufacturing and purchasing complexity.

That’s a reversal from a few years ago when there was an explosion of choices, encouraged in part by online shopping that paid no mind to space constraints. But that didn’t always lead to sales, so companies started pruning selections a year or two before the pandemic.

During the pandemic, the pruning only accelerated, with companies focusing on necessities as they wrestled with supply chain clogs. But even after the pandemic, when goods began moving freely again, many businesses decided less was better and justified the limited selection by asserting shoppers don’t want so much choice. It’s also more profitable for companies because they’re not carrying over as many leftovers that need to be discounted.

Overall, new items accounted for about 2% of products in stores in 2023 across categories such as beauty, footwear, technology and toys, down from 5% of items in 2019, says market-research firm Circana.

Eric O’Toole, president of Edgewell’s North America division, noted the pandemic presented “a really valuable stimulus” for reassessing assortment.

“We avoid jumping on fads, as the supply chain and retailer costs required to support  

getting to shelf typically don’t generate a return in the end,” O’Toole said. “A tighter,  

more curated portfolio supports healthy profit management.”

Many think they’re doing shoppers a favor, with studies showing that fewer choices, not lots of variety, encourage shoppers to buy more.

In 2000, psychologists Sheena Lyengar and Mark Lepper published a study that showed limited selection is better for the shopper. In their experiment, Lyengar and Lepper found consumers were 10 times more likely to purchase jam on display when the number of jams available was cut down from 24 to 6 even though they were more likely to stop at the display offering more selection. Subsequent studies have confirmed this phenomenon. 

“Retailers are recognizing that they have to be respectful of shoppers’ time,” said Paco Underhill whose company, Envirosell, studies consumer behavior.

Still, retailers can’t just slash products willy-nilly, said David Berliner, who leads the business restructuring and turnaround practice at BDO.

“You want to make these cuts so they’re not even aware of it, and you want the store to still look full,” Berliner said. “If you do it too much, you might scare some away.”
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WASHINGTON — U.S. Treasury Secretary Janet Yellen will travel to the battleground states of Pennsylvania and Michigan this week as part of an election-year push aimed at showcasing what she calls “the strongest economic comeback of our lifetimes.”

Yellen will visit Pittsburgh on Feb. 13 and Detroit on Feb. 14 for events with elected officials and community leaders focused on the Biden administration’s efforts to lower health care costs, support small businesses and boost economic opportunity, the Treasury said.

The trips build on Yellen’s visits to Illinois and Wisconsin in January and other states such as Nevada and North Carolina last year. But the administration’s marketing efforts have failed to convince the American public, according to recent polls.

A recent Reuters/Ipsos poll showed President Joe Biden is running six percentage points behind Republican front-runner former President Donald Trump, with voters focused on immigration challenges, Biden’s age and are still unhappy about the economy despite big improvements since he took office in 2021.

Yellen has counseled patience in the past, arguing that the shock caused by the COVID pandemic left lingering concerns, while expressing confidence about improving consumer sentiment.

“Over the past three years, the Biden administration has driven the strongest economic comeback of our lifetimes,” Yellen said in a speech to be given at the Greater Pittsburgh Chamber of Commerce on Tuesday. She will also meet with Democratic Senator Bob Casey, a strong supporter of Biden.

She will hail strong economic growth in the U.S., a quicker and more rapid cooling of inflation than in other advanced economies, and the continued strength of the labor market.

With unemployment below 4% and household median wealth up 37% between 2019 and 2022 — the largest three-year increase on record — Americans now had more purchasing power, she said.

In Detroit, whose economic recovery has lagged behind other cities somewhat, Yellen will speak at a joint event with Governor Gretchen Whitmer, meet with Senator Debbie Stabenow and local business leaders, and give a speech focused on small businesses.

Detroit has seen economic advances, but other Midwestern counterparts have higher numbers of workers earning a living wage, according to University of Michigan economists.
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Dubai, United Arab Emirates — The International Monetary Fund said on Sunday Middle East economies were lagging below growth projections due to oil production cuts and the Israel-Gaza conflict, even as the global economic outlook remained resilient.

Despite uncertainties, “the global economy has been surprisingly resilient,” IMF managing director Kristalina Georgieva told the Arab Fiscal Forum in Dubai, while warning of a potential wider impact on regional economies of continued conflict in Gaza.

In a regional economic report last month, the IMF revised its GDP growth forecast for the Middle East and North Africa down to 2.9% this year, lagging below October projections, due in part to short term oil production cuts and the conflict in Gaza.

The IMF last month edged its forecast for global economic growth higher, upgrading the outlook for both the United States and China and citing faster-than-expected easing of inflation.

Georgieva said economies neighboring Israel and the Palestinian territories saw the conflict weighing on tourism revenues, while Red Sea attacks weighed on freight costs globally.

Those factors compounded “the challenges of economies that are still recovering from previous shocks,” she told the forum on the sidelines of the World Governments Summit in Dubai.

The Iran-aligned Houthis in Yemen have been targeting commercial vessels with drones and missiles in the Red Sea since mid-November, and say their attacks are in solidarity with Palestinians as Israel strikes Hamas militants in Gaza. But the U.S. and its allies characterize them as indiscriminate and a menace to global trade. 

Several global shippers have been diverting traffic to the Cape of Good Hope, a longer route than through Egypt’s Suez Canal.

Egypt’s Finance Minister Mohamed Maait told Reuters on the sidelines of the summit that part of the impact of the diversion on Suez Canal revenues could be absorbed due to good growth in “the period before the events.”

AI Tsunami

The IMF will publish on Monday a paper that shows phasing out energy subsidies could save $336 billion in the Middle East, equivalent to the economies of Iraq and Libya combined, Georgieva said.

Georgieva said that eliminating regressive energy subsidies also “discourages pollution, and helps improve social spending.”

In the Middle East and North Africa (MENA) region, fossil fuel subsidies made up 19% of GDP in 2022, the IMF has said.

It has recommended the gradual unwinding of energy subsidies for the region’s economies, including oil exporters, and suggested targeted support as an alternative.

Advanced technology, including Artificial Intelligence, is a key theme of focus at the World Governments Summit, with several top executives from major global tech firms due to speak, including Sam Altman, CEO of OpenAI.

Georgieva said globally, 40% of jobs are exposed to AI, and countries that lack the infrastructure and a skilled workforce to invest could fall behind.

Regional economies such as the UAE and Saudi Arabia have significantly increased investment in AI as part of strategies to diversify income sources.
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