UK and Japan enters recession

UK and Japan enters recession

Two major economies fell into recession at the end of last year, but that’s not hurting their stock markets much.

Gross domestic product in Japan and the U.K. declined for two consecutive quarters in the second half, data showed Thursday. Nevertheless, the Nikkei finished 1.2% higher on the day, reaching a 34-year high. Over in the U.K., the FTSE 100 added 0.2% in early trading.

While both are contracting, they’re in very different positions. Japanese stocks are being boosted by a weak yen, which is being pushed down by the Bank of Japan’s reluctance to raise interest rates as it tries to emerge from decades of deflation. The currency’s recent declines even meant that the size of Japan’s economy slipped behind Germany in dollar terms.

The U.K., by contrast, is suffering from inflation that is still at twice the Bank of England’s target despite the economic slump. A weaker-than-expected inflation reading earlier this week raised hopes that the central bank will bring cuts forward, though Governor Andrew Bailey says he wants to see more evidence that inflation is falling.

From a longer-term perspective, U.K. and Japanese stocks have diverged greatly. The FTSE 100 is down 5.5% over the past 12 months, while the Nikkei has surged 38%. By comparison, the S&P 500 is up 21% over the past year.

Growth in Japan and the U.K. is expected to remain weak this year due to recession. The International Monetary Fund sees the U.K. expanding by 0.6% in 2024 and Japan growing by 0.9%. It sees U.S. growth at 2.1%.

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