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Japan economy shrinks, raising recession fears

Reuters  Tokyo, November 12, 2012
First Published: 22:35 IST(12/11/2012) | Last Updated: 22:37 IST(12/11/2012)

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% 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 3.5% decline. While US growth showed a modest pick up in the third quarter, Japan and the euro zone 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.

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.

Japan's exports fell 5.0% in July-September, the biggest slide since a 6.0% decline in April-June last year, the data showed.

A row with China over sovereignty of some islands in the East China Sea sparked violent protests in China and the boycott of Japanese goods, which added to the slide in exports particularly for automakers such as Nissan Motor Co.

Private consumption - which accounts for roughly 60% of the economy - fell 0.5% in the third quarter against a median forecast of a 0.6% drop.

Capital expenditure tumbled 3.2%, the fastest pace of decline since a 5.5% drop in April-June 2009 as companies turned more pessimistic about earnings from domestic and overseas markets.

In Japan's electronics sector, Sony plans to reduce capital spending by 29% during 2012-13 and Panasonic plans a 27% cut after incurring huge losses in TV manufacturing businesses.

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