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Tuesday, Nov. 18, 2008

Japan slides into recession

First officially recorded since '01 as quarter saw 0.4% decline

Staff writer

The economy shrank at an annualized pace of 0.4 percent in the three months through September, posting its second consecutive quarter of negative growth amid the global financial crisis and indicating Japan has entered a recession for the first time since 2001.

News photo
Kaoru Yosano KYODO PHOTO

The Cabinet Office in a report issued Monday said weak domestic demand and a rise in imports led gross domestic product to contract for the second straight quarter, following an annualized 3.7 percent fall in April-June.

The GDP figures "show that the economy is in a recessionary phase," defined as two successive quarters of contraction, Kaoru Yosano, economic and fiscal policy minister, told reporters.

"As the global economy is expected to slow down for the time being, downward movement (in Japan) is expected to continue," Yosano said.

GDP, the broadest measure of economic activity, contracted 0.1 percent in July-September from the previous quarter.

In nominal terms, unadjusted for price changes, the economy contracted 0.5 percent in the quarter, or an annualized contraction of 2.1 percent.

Major private-sector think tanks had believed the economy remained at zero growth in real terms in July-September.

"Basically, this came within (experts') earlier projections." said Yasutoshi Nagai, chief economist of Daiwa Securities SMBC.

The second consecutive fall in gross domestic income was particularly noteworthy for Nagai. GDI fell 0.6 percent in July-September on top of a 1.5 percent fall the previous quarter.

"We could confirm the economy is considerably bad in terms of income," Nagai said. "Although we already knew that we have been in a recession, this completely made (it) clear."

Nagai expects the economy to continue to post negative growth until around the January-March quarter, as overseas economies will remain stagnant.

After cutting its benchmark interest rate to 0.3 percent in October, the Policy Board of the Bank of Japan is set to hold a meeting later this week.

Nagai, however, does not expect the central bank to make a further rate cut at this time.

"BOJ Gov. Masaaki Shirakawa meanwhile might indicate the future possibility of a further rate cut," Nagai said.

Consumer spending, which accounts for more than half of Japan's GDP, edged up 0.3 percent and housing investment rose 4 percent.

But corporate investment in plants and equipment fell 1.7 percent. Imports climbed 1.9 percent while exports edged up 0.7 percent.

Koichi Haji, chief economist at NLI Research Institute, agreed that the worsening economic condition was reconfirmed with the latest GDP figure.

"America, the euro zone and Japan all posted negative growth, which suggests advanced economies overall are in considerably serious recessions," Haji said.

Information from Kyodo added

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