Japan’s Recession a Bad Sign for U.S. Investors

Submitted by William Briat as part of our contributors program.

Japan’s Recession a Bad Sign for U.S. Investors

The U.S. economy has been showing some positive growth that has helped to propel the stock market higher, but be careful: there appears to be some cracks forming in the global economy to which the U.S. economy will not be immune.

Japan reported that its economy fell back into a recession after contracting an annualized 1.6% in the third quarter, representing the second straight quarter of contraction. Part of the blame will squarely lie with Prime Minister Abe and his controversial decision to raise the country’s sales tax from five percent to eight percent in April.

I consider the decision to raise the sales tax wrong, as it largely impacts the middle class and lower income brackets in Japan. The rich don’t care. (Sound familiar?) Worst of all, Abe cut taxes on big business instead. Currently, the sales tax is planned to rise to 10% in October 2015, but there’s speculation Abe will put a hold on this move.

The softness in Japan and the global economy makes it even more critical that Abe work toward a better relationship with Japan’s historical and current rival China. Japan already calls China a major trading partner in the global economy, but the numbers have been declining over the past few years, due to tensions between the two Asian powerhouses.

The problem is that China is also facing its own internal growth issues with the stalling in the global economy, along with concerns in the real estate and debt markets that could impact the country.

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