Japan has slumped back into recession, a trend that has repeated itself off and on for years. Its gross domestic product (GDP) fell 1.6% on an annualized basis in the third quarter. That followed a sickening drop of 7.3% on the same basis in the second quarter. Is it possible that a recession in one of the world’s largest economies can help another? Yes, at least in part.

The most obvious and least sophisticated view of the relationship between Japan’s recession and U.S. GDP is that the demand for energy in a troubled economy is likely lower than in one that is thriving. Japan’s problems are amplified in the global economy by deep recovery troubles in the European Union and an apparent drop in growth in China. Among the first effects of the news from Japan was another drop in oil prices, which fell another 1% to less than $75. This fall has undoubtedly begun to do wonders for U.S. consumer spending as retail sales reach the critical fourth quarter. Companies that rely on low fuel and petrochemical prices for much of their margins also get helped.

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The effects of recession on the value of the yen are not as clear. The Bank of Japan has been endlessly offering its own versions of stimulus on the same theory as that of the U.S. Federal Reserve. Liquidity eventually will create a heartbeat in even the most critically injured patient. The activity helps the profits of large Japanese companies rise as the value of the exchange rate super-charges earnings. As a tangent, any U.S. investment in a surging Japan stock market has been particularly good, as the Bank of Japan action had helped drive the stock market there to multiyear highs. According to Bloomberg:

As the earnings season winds down in Japan — almost all companies will have reported results by next week — exporters are emerging as one of the biggest beneficiaries of Prime Minister Shinzo Abe’s economic policies. For investors, the weaker currency is outweighing slumps in wages and local consumption, prompting them to push up the Nikkei 225 Stock Average to levels last seen seven years ago.

The other side of the yen equation, particularly as it related to the dollar, is that the current value of the Japanese currency hurts U.S. corporate profits, to the extent to which these companies do business in Japan. On the other hand, U.S. companies that sell goods and services to Japanese ones at least get an increase in demand, even if the effect of currency is against those of the American firms.

The trade-off between currency value and energy prices as Japan’s economy shrinks is far too simplistic to make a case about the country’s recession and the American economy. At least it can be said the line between low oil prices and consumer prosperity is not ambiguous.

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