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Friday, 8 March, 2002, 06:02 GMT
Japan's recession drags on
A trader takes a break as markets in Japan firm
The markets are shrugging off the bad news as the US economy strengthens
Any lingering doubts about the depth of Japan's economic troubles have been washed away with news that the economy shrank during the last nine months of 2001.

Only once in two decades, in 1993, has that happened, the government said.

Figures released by the Ministry of Finance showed that between October and December alone Japan's output fell by 1.2%.

Over the whole of 2001, which saw growth in the first three months, output fell by 0.5%.

Markets unruffled

The contraction during the October to December period was even worse than many economists had predicted.

But it failed to perturb Japan's financial markets.

Hopes of a better performance during the current quarter helped both the benchmark Nikkei 225 share index and the yen to rise.

Investment collapse

Masajuro Shiokawa, Japan's finance minister, said more capital spending by firms was needed to underpin economy recovery, after data within Friday's report revealed a 12% decline in private capital investment.

"The government alone cannot be effective," he said, after a decade in which the state has borrowed heavily to pay for public works projects, hoping to kickstart the economy.

But firms and banks have found debts too high to divert funds to capital spending.

Among households, spending was up 2% during the quarter, and 0.8% over the year, with the aftermath of the 11 September attacks thought to have played a role in consumption gains.

"There is considerable evidence to suggest that Japanese consumers substituted domestic purchases for overseas travel in the wake of the terrorist attacks," said Ron Bevacqua, chief economist at Commerzbank Securities.

Observers nonetheless predict further economic troubles for Japan, with the unravelling corporate debt mountain likely to prompt the collapse of some companies.

The BBC's Charles Scanlon
"All hopes are pinned on the US and other Asian markets, once again Japan is hoping to export its way out of difficulties."
The BBC's Victoria Broadbent
"Despite zero interest rates people are still saving and not borrowing."
View market data
Launch marketwatch
The Markets: 9:29 UK
FTSE 100 5760.40 -151.7
Dow Jones 11380.99 -119.7
Nasdaq 2243.78 -28.9
FTSE delayed by 15 mins, Dow and Nasdaq by 20 mins
See also:

05 Mar 02 | Business
Japan pledges economy boost
04 Mar 02 | Business
Tokyo shares hit six-month high
27 Feb 02 | Business
Nikkei soars ahead of deflation plan
19 Feb 02 | Business
Reform fears hit Tokyo markets
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