Japan's Economy Shrinks More Than Feared, Fueling Record ¥122 Trillion Budget Plan

Japan's economy is flashing warning signs, contracting more sharply than initially estimated in the third quarter. In response, the government is reportedly preparing a record-breaking budget of around ¥122 trillion to shore up growth. Yet, a potential pullback in green energy support is creating policy crosswinds, leaving investors uncertain about the country's direction.

Deeper Contraction Than Expected

The revised Gross Domestic Product (GDP) figure for the July-September quarter showed an annualized contraction of -2.3%, a significant downward revision from the preliminary estimate. The slump was driven by weakness in private consumption and business investment, signaling that the core engines of Japan's domestic economy are sputtering. Reflecting the uncertainty, Tokyo's stock market has seen choppy trading, with buyers and sellers locked in a tug-of-war as they digest the conflicting economic data.

Government's Answer: A Record Spending Spree

Faced with growing recession fears, Tokyo is gearing up to open the fiscal spigots. According to reports on ministerial negotiations, next year's budget is set to be the largest in history, topping ¥122 trillion (approximately $830 billion). The massive spending package is expected to fund measures aimed at easing the burden of inflation on households and stimulating sluggish domestic demand. It's a clear signal of the government's intent to use fiscal policy to prop up the fragile economy.

An Energy Policy Pivot?

However, the government's expansive mood doesn't extend to all sectors. In a potentially significant policy shift, officials are now considering a complete overhaul of support for large-scale solar power installations, known as 'mega-solar' projects, which could include abolishing subsidies. This review injects a dose of uncertainty into Japan's renewable energy strategy and could have major repercussions for the industry. While the government is spending to boost today's economy, it appears to be reconsidering its investment in a key industry of the future.