Japan's economy shrinks, economists predict recession

Featured Japan - November 13th, 2012

Japan is possibly facing another recession as gross domestic product contracted 3.5% in the third quarter on an annual basis, Tokyo reported Monday.

According to economists, another contraction in the current quarter will mean that Japan is headed towards its fifth recession in 15 years as pressure mounts for the government to turn around the ailing economy.

The economy saw relatively strong growth in the first half of the year boosted by reconstruction efforts in tsunami-hit areas but slowed down in the third quarter, hurt by slumping Chinese demand and the eurozone crisis, reports the Financial Times.

Japanese exports fell 5% in the July-September period while household consumption and business investment deteriorated.

“Japan’s economic growth has become dependent on export growth, and without stronger economic growth, the country will not contain its rising government debt burden,” Moody’s Investors Service warned in a report.

Economy minister Seiji Maehara told the Financial Times that Japan had possibly entered a “recessionary phase”.

The economy is expected to suffer again in the fourth quarter of this year amid mounting tensions over a territorial dispute with China, Japan’s largest trading partner, which has sparked boycotts of Japanese goods.

Analysts expects the central bank to initiate monetary easing policies after coming under pressure to tackle Japan’s huge deficit. Bank of Japan governor Masaaki Shirakawa said Monday the bank should “exert every effort to enhance its easing effects as much as possible”.