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Japan in recession, BoJ eyes stimulus

Josephine Moulds, The Guardian  Tokyo, December 11, 2012
First Published: 22:34 IST(11/12/2012) | Last Updated: 22:36 IST(11/12/2012)

Japan - the world's third largest economy - has fallen into recession, hit by sluggish exports to China.

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Revised official data on Monday morning showed that the Japanese economy shrank very slightly in the second quarter of 2012, by 0.03%, before contracting by 0.9% between July and September.

Analysts expect the country to stay in recession in the final quarter of the year, ratcheting up the pressure on the government to take steps to boost the economy in the runup to the general election on 16 December.

Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo, said: "There have been some positive indicators out in October butthere is still a good chance that Japan's economy will suffer another contraction in the October-December quarter.

"The eurozone crisis, a strong yen that has weakened exports and a diplomatic row with major trade partner China have harmed Japan's economy, dampening hopes of a strong recovery after the 2011 tsunami.

Last month, Tokyo approved $10.7bn (€6.67bn) of spending, more than double a package announced in October. But polls suggest it will not be enough for PM Yoshihiko Noda and his Democratic party to avoid defeat at the elections on 16 December.

Japan's main opposition party has promised to spend heavily on public works and push the Bank of Japan to launch measures to boost growth if it wins.Recent polls suggest the party will win a solid majority and return to power for the first time since 2009.

The deputy governor of the Bank of Japan said last week they will debate whether further stimulus is needed for giving a boost to the economy, signalling it may loosen policy again at its next rate review on 19-20 December in the face of growing political pressure.


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