Japan’s economy contracted 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 (capex) 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 annualized rate of decline of 3.5 percent, government data showed yesterday. While US growth showed a modest pick up in the third quarter, Japan and the eurozone 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 (BOJ) to boost monetary stimulus even after it eased policy last month for the second straight month as a strong currency and a territorial row with China exacerbate weak demand for exports.
Japanese 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 to 20 meeting, shortly after the US Federal Reserve is due to meet.
External demand accounted for 0.7 percentage points of the July-September GDP contraction, matching the median projection. Japan’s exports fell 5 percent in July-September, the biggest slide since a 6 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.
Private consumption — which accounts for roughly 60 percent of the economy — fell 0.5 percent in the September 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.
Analysts said Japanese companies face too many uncertainties to plan future spending with confidence and that is unlikely to change in the current quarter.
Resolving the protracted eurozone debt crisis is no nearer, US tax increases and government spending cuts early next year could tip the US into recession unless Congress acts, and adding domestic uncertainty, Japanese Prime Minister Yoshihiko Noda has promised to call a national election “soon” to break a political deadlock.
Masamichi Adachi, senior economist at JPMorgan Securities, said business investment would fall again in the December quarter as the global economy recovers only gradually.
“If some of these uncertainties are removed, it is possible for things to improve,” Adachi said.
He forecast that capex would decline by 0.5 percent in October-December and then rise by 0.7 percent in January-March.
Japan’s economy outperformed most of its G7 peers in the first half of this year on robust private consumption and spending for reconstruction following last year’s earthquake.
However, growth has stalled since then. Indeed, growth in the June quarter 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 last year, when GDP declined 0.3 percent.
With the economic effect of rebuilding from last year’s earthquake and tsunami fading, the government acknowledged last week that its index of leading indicators gauge fell to a level suggesting the onset of a recession.
“I cannot deny the possibility that Japan has fallen into a recession phase,” Maehara told reporters after the data was released.