Behind the Numbers: What’s Driving the Downturn and What’s Holding Up

Digging deeper into Japan’s Q3 data gives a clearer picture of where the strength and weakness lie. Private consumption barely grew, just about +0.1%, reflecting weak household spending under the pressure of inflation and slower wage growth. External demand dragged on the economy too: exports and net external demand fell (external demand declined by 0.2% quarter-on-quarter). On the flip side, investment by firms held up relatively well. As mentioned, business capex rose 1.0% in Q3 — showing companies are still putting in money, possibly into infrastructure and other longer-term items. So the scene: households are holding back, export conditions are tough, but firms are still investing. That mix helps explain why the economy shrank — but less than feared. For watchers of policy, the fact that capex remains positive gives a bit of hope that Japan might have some foundation to build on as it navigates domestic and external headwinds