Japan economy shrinks as recession looms ahead

Japan’s economy shrank in the September quarter for the first time since last year, adding to signs that slowing global growth and tensions with China are nudging the world’s third-largest economy into recession.

The 0.9 per cent fall in GDP was in line with expectations, although a decline in capital expenditure was much steeper than forecast.

Sony Corp. and Panasonic Corp. have slashed spending plans to cope with massive losses as they struggle with competitive markets and a strong yen.

The fall in GDP translated into an annualised rate of decline of 3.5 per cent, government data showed yesterday. While US growth showed a modest pick-up in the third quarter, Japan and the eurozone economies are shrinking.

“The GDP data confirms that the economy has fallen into a recession,” said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. “It is set for a second straight quarter of contraction in the current quarter.”

A recession is commonly defined as two consecutive quarters of contraction.

The data kept government pressure on the Bank of Japan to boost monetary stimulus even after it eased policy in October for the second straight month as a strong yen and a territorial row with China exacerbate weak demand for exports. Economy Minister Seiji Maehara said the Central Bank should pursue powerful policy easing to boost the economy, although BOJ Governor Masaaki Shirakawa shot back that the Government should do its bit too.

Many analysts expect the BOJ to leave policy unchanged at a review next week but some see it boosting stimulus again at a December 19-20 meeting, shortly after the US Federal Reserve is due to meet.

External demand accounted for 0.7 percentage points of July-September GDP contraction, matching the median projection.