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Friday, September 11, 1998 Published at 08:20 GMT 09:20 UK

Business: The Economy

Japan's recession deepens

Tokyo markets have been having a rough ride recently

Japan's GDP is falling at an annual rate of 3.3%.

The latest figures show that the total size of the economy contracted by 0.8% in the second quarter of the year, the third straight such decline.

It is the first time the Japanese economy has contracted for three quarters in a row since 1955.

[ image: Masaru Hayami: Governor of the Bank of Japan]
Masaru Hayami: Governor of the Bank of Japan
The Bank of Japan said that the economy was showing no signs of recovery.

In its monthly economic report, the Bank said that private sector demand had failed to recover despite the government's tax cuts.

"The economy is not likely to move to a self-sustained recovery path led by private sector demand in the near-term," it said.

The head of the Economic Planning Agency, Taichi Sakaiya, said that the GDP figure was worse than expected, and that the government's target of 1.9% growth for the fiscal year was now clearly impossible.

And the governor of the Bank of Japan warned that urgent action was needed to save Japan's banking sector from collapse.

Deflationary spiral

However Governor Masuri Hayami warned that the end of poltiical squabbling was needed so that necessary reforms could be implemented quickly.

He also said that he hoped that the Japanese interest rate cut would eventually help stablise financial markets.

Top financial diplomat Eisuke Sakakibara said the downturn would persist into the early autumn and that the economy was on the edge of a deflationary spiral.

"From what we have observed in July and August, the July to September quarter will not be good.

"I don't think the Asian crisis is over. We are on the verge of a deflationary spiral and we need to avoid that."

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