Japan falls into recession

Japan has little economic news to celebrate

Japan has entered a recession, according to the latest official figures, which show the world's second largest economy continued to shrink between July and September.

The news means the world's three biggest economies - the United States, Japan and Germany - are all now in, or on the verge of, recession for the first time since the 1970s.

There is much possibility that the October to December figures could also be severe

Economy minister

Japan's prime minister, Junichiro Koizumi, pledged his government will push through promised austerity measures to tackle the problem: "We're taking steps... structural reform is the best policy."

Meanwhile two members of the cabinet's economic team warned of worse to come.

Japan was last in recession in the first half of 1998 following the collapse of major financial institutions.

More pain ahead

Trade Minister Takeo Hiranuma raised the possibility that the economy may continue to contract in the next fiscal year - which ends in March 2003.

"If the current situation continues, negative growth is inevitable" in the next fiscal year, he said.

For this year, Economy Minister Heizo Takenaka warned, "there is much possibility that the October to December figures could also be severe".

It's official

Long-awaited figures showed that Japan's gross domestic product (GDP) shrank by 0.5% in the July to September period compared to the previous three months, giving an annualised decline of 2.2%.

Japan needs to increase consumer spending

The economy shrunk by 1.2% in the April to June period according to revised official figures.

This means Japan has now had two successive quarters of negative growth - which is the common definition of a recession.

The economy minister's warning suggests that the recession could be extended into a third quarter.

Global woes

The US entered recession in March this year, according to the US National Bureau of Economic Research, an official panel of senior economists in a statement last month.

And many senior German business leaders now accept their country is also in recession. Although the country has so far narrowly avoided two successive quarters of negative growth, the next set of GDP figures are expected to confirm the situation.

Record unemployment

It is not only Mr Hiranuma who thinks Japan's the economy could be in recession for a while.

The Organisation for Economic Cooperation and Development (OECD) has warned that Japan's economy is likely to shrink by 0.75% this year and by a full 1% next year.

Last month, the Japanese government said it was expecting the economy to shrink 0.9% for the fiscal year ending in March - a long way off its original target of 1.7% growth.

Unemployment is at a record 5%, its highest level since the Second World War.

Cautious consumers

Japan is still suffering from an economic crisis that hit the country in 1989-90, when the "bubble economy" of high land prices and high stock market prices collapsed.

The economy is trapped in a cycle of falling prices and rising unemployment as consumers stubbornly refuse to spend money on goods that are dropping in value.

"All the factors on the demand side are annihilated," said BNP Paribas chief economist Ryutaro Kono.

"The world economy is in a downturn so exports are down. Corporate profits are faltering so investments are down. With the economy slowing, incomes are down so consumption is down."

The prime minister's reform strategy did get one boost from parliament on Friday, as it passed a bill to enable the bad debts crippling the banking sector to be dealt with more swiftly.

However, the yen slipped to 124.90 against the dollar on news of the GDP data, its weakest level since 1 August.