Japan slid into its first recession in seven years as the financial crisis curbed demand for Japanese exports.
Japan slides into recession
Japan slid into its first recession in seven years today as the financial crisis curbed demand for Japanese exports. The economy minister and analysts offered little hope of a recovery until next year. The 0.1 per cent contraction in July-September GDP confirmed the global crisis has sabotaged growth in yet another major economy. The euro zone is also in recession, using the common definition of two consecutive quarters of contraction, and the United States is seen following. Some economists warned Japan could face a record four quarters in a row of recession, and Economy Minister Kaoru Yosano similarly warned of increasingly tough times ahead. "The downtrend in the economy will continue for the time being as global growth slows," Mr Yosano said. "We need to bear in mind that economic conditions could worsen further as the US and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings." The European and Japanese recessions underscore the task facing world leaders who backed a plan for the global economic crisis on Saturday, but failed to impress markets seeking specific measures. Market mayhem since October adds to the gloomy outlook for Japan, the world's second-largest economy. Tokyo's Nikkei share average has fallen by a quarter since the start of October, and the yen spiked to a 13-year high against the dollar last month, further hurting exporters and surely curbing consumption. Japan's gross domestic product figure translated into an annualised fall of 0.4 per cent, lagging a consensus market forecast for a 0.3 per cent expansion, government data showed. Japan's second-quarter contraction was revised in today's data to a larger 0.9 per cent slide, the biggest such drop in seven years, and some said gross domestic product (GDP) could slide for a full year. "The risk of Japan posting a third or fourth straight quarterly contraction is growing, given the fact that we can no longer rely on exports as overseas economies are slowing down due to the spread of the financial crisis," said Takeshi Minami, chief economist at Norinchukin Research Institute. The yen dipped after the data, but a global flight to low-risk currencies meant the fall was shortlived. Japan's Nikkei share average fell 2.5 per cent before bargain hunters in thin trade turned the index around. Japan had enjoyed its longest period of economic expansion since World War Two until last year, largely on the back of corporate expansion and exports, when the subprime crisis hit. On Friday, the 15-nation euro zone reported its economy shrank 0.2 per cent for the second quarter in a row, and most economists say the United States is probably in recession, although official data won't come until January. To help ease the pain, the Bank of Japan, which had opted out of coordinated interest rate cuts earlier, joined the global trend late last month by cutting its key interest rate target to 0.30 from 0.50 per cent. Economists are divided over whether the central bank may cut rates even closer to zero, with some forecasting a return to Japan's policy of zero rates while others see no point in such a move. "It's too late for monetary policy to revamp the economy. The economy needs to depend on fiscal policy," said Kyohei Morita, chief economist at Barclays Capital Japan. As well as planned government stimulus spending, the export outlook will play a big part in a return to growth for Japan, but analysts were disappointed with the efforts of world leaders at a G20 meeting on the crisis over the weekend. Governments from Washington to Beijing agreed to a host of fiscal and monetary steps to rescue the global economy, but it was left to individual governments to tailor their response to the crisis. * Reuters