Japan enters recession

Japan fell into a recession in the third quarter for the first time since 2001 as the impact of the global slowdown took its toll on the world’s second largest economy, the government said today.

Japan’s gross domestic product, or the total value of the nation’s goods and services, dropped at an annual pace of 0.4% in the July-September period as companies sharply curtailed spending.

The weaker-than-expected result indicates that Japan, along with the eurozone, is now technically in a recession, defined as two straight quarters of negative growth. GDP in the April-June period fell a revised 3.7% and rose 4.0 in the first quarter.

Economists surveyed by Kyodo news agency had predicted an annualised 0.1% rise in the third quarter.

On a quarterly basis, GDP contracted 0.1%, the government said. Business investment – a main driver of Japan’s six-year economic recovery since 2002 - slid 1.7% from the previous quarter.

The worst may be yet to come, economists say, especially with dramatic falls in demand overseas for trademark Japanese products like cars and gadgets. As a result, major exporters including Toyota and Nissan have slashed their profit forecasts and sales projections for the full year.

Since taking office in late September, Japanese prime minister Taro Aso has so far unveiled two economic stimulus packages in an effort to cushion the blow.

The deteriorating conditions led Masamichi Adachi, senior economist at JPMorgan Securities in Tokyo, to recently downgrade his outlook on the Japanese economy.

“We are now looking for a severe recession, similar to that during Japan’s own financial market crisis in 1997 to 1998, and to the current US recession, in terms of depth of real GDP contraction,” he said in a report.

In trading last night, the benchmark Nikkei 225 stock index was down 2.7%.