Japan economy shrinks as firms cut capex, recession looms

Nov 12 2012, 16:34 IST
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Japan's economy shrank in the September quarter for the first time since last year.  (Reuters) Japan's economy shrank in the September quarter for the first time since last year. (Reuters)
SummaryJapan's economy shrank in the September quarter for the first time since last year.

Japan's economy shrank in the September quarter for the first time since last year, adding to signs that slowing global growth and tensions with China are nudging the world's third-largest economy into recession.

The 0.9 percent fall in GDP was in line with expectations, although a decline in capital expenditure was much steeper than forecast. Sony Corp and Panasonic Corp have slashed spending plans to cope with massive losses as they struggle with competitive markets and a strong yen.

The fall in GDP translated into an annualised rate of decline of 3.5 percent, government data showed on Monday. While U.S. growth showed a modest pick up in the third quarter, Japan and the euro zone economies are shrinking.

The GDP data confirms that the economy has fallen into a recession, said Tatsushi Shikano, senior economist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo. It is set for a second straight quarter of contraction in the current quarter.

A recession is commonly defined as two consecutive quarters of contraction.

The data kept government pressure on the Bank of Japan to boost monetary stimulus even after it eased policy in October for the second straight month as a strong yen and a territorial row with China exacerbate weak demand for exports.

Economy Minister Seiji Maehara said the central bank should pursue powerful policy easing to boost the economy, although BOJ Governor Masaaki Shirakawa shot back that the government should do its bit too.

Many analysts expect the BOJ to leave policy unchanged at a review next week, but some see it boosting stimulus again at a Dec. 19-20 meeting, shortly after the U.S. Federal Reserve is due to meet.

External demand accounted for 0.7 percentage points of July-September GDP contraction, matching the median projection. Japan's exports fell 5.0 percent in July- September, the biggest slide since a 6.0 percent decline in April-June last year, the data showed.

A row with China over sovereignty of some islands in the East China Sea sparked violent protests in China and the boycott of Japanese goods, which added to the slide in exports, particularly for automakers such as Nissan Motor Co.

Private consumption - which accounts for roughly 60 percent of the economy - fell 0.5 percent in the third quarter against a median forecast of a 0.6 percent drop.

Capital expenditure tumbled 3.2 percent, the fastest pace of decline since a 5.5 percent drop in

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