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 US 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.
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. 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 April-June 2009, as companies turned more pessimistic about earnings from domestic and overseas markets.
Japan's economy outperformed most of its Group of Seven peers in the first half of this year on robust private consumption and spending for reconstruction following last year's earthquake. But growth has stalled since then. Indeed, second-quarter growth was revised down in the latest figures by half to just 0.1 percent. The last quarterly economic contraction was in the October-December period of 2011, when GDP fell 0.3 percent.