Capital Economics says Japan, the third-largest economy in the world, is likely to enter a recession next year. The warning came in an interview with CNBC Tuesday, as the nation’s inflation rate hit the highest it has been in over 40 years, in October, as the yen devalued and import cost pressures decreased.

Marcel Thieliant, senior Japan economist at the consultancy predicted the recession will “mostly be driven by a drop in exports and also by becoming more cautious, which is typically what you see when exports start to fall.”

Japan’s most recent trade deficit data for the month of October came in larger than expected at $15 billion. Exports rose 25.3%, slower than September’s 28.9% year over year growth. At the same time, imports increase by 53.5% annually for October, which was higher than September’s 45% year over year growth.

Japan’s Q3 GDP report will come out Thursday, and investors and economists will be sure to be watching closely. In a Reuter’s poll of analysts, there was an expectation of a 1.1% annualized contraction for the period, between July and September. Combined with the previous quarter’s 1.2% contraction, that will mean Japan will have already entered what is called a technical recession, based solely off of two consecutive negative GDP readings.

For his part, Thieliant predicts that Japan will continue with its dovish monetary policies, and will not begin any form of tightening, especially as fears of a recession mount.

The economist noted, “The [central] bank has indicated that it wants to see sustainable inflation and the kind of cost-push inflation that we are seeing now is not sustainable.”