(Feb 15): Japan’s economy is likely to contract yet again this quarter, after a surprise contraction at the end of 2023 showcased its stagnation, creating a headache for the Bank of Japan (BOJ), according to a top economic forecaster.

“I expect three consecutive quarters of negative economic growth,” said Yoshiki Shinke, who has won forecasting awards 14 times from the Japan Center for Economic Research, the most among participants. “Japan’s economy is stagnating heavily in the absence of a leading engine.”

The economy slipped into a recession after data on Thursday showed the economy shrank for a second quarter in the October-December period. The annualised quarterly contraction of 0.4% would have been even worse — possibly around 1.7% — had it not been for a one-off boost from industrial royalties, according to Shinke.

If Shinke’s analysis proves accurate, the BOJ will remain stuck in an uncomfortable spot, as it seeks the best timing to conduct its first interest rate increase since 2007. Some market participants pushed back their bets on the time frame for the move after the gross domestic product data.

“I still think the BOJ will do it in April,” Shinke said. “They will probably point out brighter signs ahead, as there seems to be positive momentum for wage growth this year.”

Toyota Motor Corp's subsidiary Daihatsu Motor Co suspended production after a safety scandal erupted in December. Economists expect the closures to deal a heavy blow to Japan’s economic activities until the company returns to full output.

“I don’t see the power of resilience against those headwinds in Japan’s economy now,” Shinke said. “Households are struggling with inflation and businesses are also pushing back investment.”

BOJ governor Kazuo Ueda has stressed that the central bank aims to achieve a virtuous economic cycle, in which wage gains feed into inflation. Shinke said with consumer spending dropping for three consecutive quarters, it’s hard to say the positive cycle had been attained. Personal spending accounts for more than half of the economy.