The Japanese economy shrank an annualized real 1.8 percent in the July-September quarter, revised downward from an initially reported 0.4 percent contraction, due mainly to falls in firms' inventory levels, the Cabinet Office said Dec. 9.

Economic and Fiscal Policy Minister Kaoru Yosano KYODO PHOTO

The latest data confirmed Japan's gross domestic product contracted for a second straight quarter, indicating the economy has entered a recession.

Amid worsening business conditions, companies cut their inventories possibly to save running costs, a Cabinet Office official said.

Economic and Fiscal Policy Minister Kaoru Yosano said the July-September results indicate Japan's exports were hurt by receding demand in the world due to the global economic slump.

"In the coming year, Japan should exercise great patience and implement policy steps to bolster the economy," he said at a news conference.

The minister said the economy-boosting measures could include investment in public works and the social security area as they will create jobs, but he warned the government against putting taxpayers' money into wasteful projects.

Yoshiki Shinke, senior economist at the Dai-ichi Life Research Institute, said that the July-September GDP data were worse than the average market projection of an annualized 0.9 percent slip, and that they showed the Japanese economy "significantly deteriorated even before the Lehman shock."

Shinke projected that the global economy will "cave in" in the October-December period and after, due to disruptions in financial markets and plunges in demand.