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Japan's economy sinks into recession

Japan sank into its first recession in seven years in the July-Sept quarter as the global financial crisis took a heavy toll on the world's second largest economy.

business Updated: Nov 17, 2008 12:45 IST

Japan sank into its first recession in seven years in the July-September quarter as the global financial crisis took a heavy toll on the world's second largest economy and curbed demand for its exports.

Japan's gross domestic product (GDP), or the total value of the nation's goods and services, shrank for a second consecutive quarter in the third quarter of 2008, down by an annualised 0.4 per cent in real terms, following an annualised 3.7 per cent contraction in the second quarter, according to a preliminary report released by the cabinet office on Monday.

Japan, along with the 15-nation euro-zone, has thus plunged into recession, which is technically defined as economic contraction in two quarters in a row.

The GDP figures show that "the economy is in a recessionary phase", said Economic and Fiscal Policy Minister Kaoru Yosano at a press conference on Monday.

"The downtrend in the Japan's economy will continue" as the global economy is expected to slow down for the time being, he added.

Admitting that hard times have come, Yosano urged the government and the private sector alike to "exert efforts to enable Japan to achieve positive growth".

Analysts believe that dramatic declines in overseas demand for Japan's autos and electronics gadgets and the appreciation of yen against the US dollar, which slash the profit, sales and spending projections, have dealt a heavy blow to Japan's economy and helped drag it into recession.

Their opinions were echoed by the cabinet office, which said in the report that both overseas and domestic demand remained sluggish and weaker overseas demand made GDP lose 0.2 percentage point - the largest decline in six years.

Corporate capital spending, a main driver of Japan's six-year economic recovery since 2002, slipped 1.7 percent in the third quarter while exports continued to slow the pace of its growth to 0.7 percent in contrast with a 1.9 per cent in imports, according to the government report.

Analysts say the outlook for the current quarter and beyond is getting more pessimistic, as the impact of the collapse of the bankruptcy of US investment bank Lehman Brothers, which owes a combined 320 billion yen ($3.05 billion) in bonds or loans to Japan's eight major banking groups, and the subsequent global financial upheavals, is expected to be felt in the October-December figures.

In the morning session of Monday, Tokyo stocks remained mostly sluggish as investors' sentiments were darkened by anxieties about Japan's economic outlook stoked by the GDP figures, ending the session at 8,561.19.

The US dollar stood firm in the upper 96 yen range Monday morning in Tokyo as dollar selling was capped by the "recessionary" domestic economic figures.

First Published: Nov 17, 2008 12:16 IST