The ongoing slide in industrial production and the weakness of the Tankan have raised concerns that Japan’s economy is in recession. It will be a close-run thing, but more important is what happens next. We think that firms have mostly now adjusted to the collapse in sales triggered by the consumption tax hike and we are not convinced that there has been any further deterioration in demand. Indeed, the best available data suggest that consumer spending is now recovering strongly. We therefore think that the economy will soon be growing again, even if it didn’t return to growth in Q3.
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