Japanese Economy Contracts, Suggesting Return to Recession

TOKYO — Japan’s economy shrank at a pace of 0.9 percent in the three months through September, government data showed Monday, as sluggish imports compounded slowing demand and edged the nation’s economy toward recession.

The decline in gross domestic product came to an annualized 3.5 percent contraction. It was a reversal from Japan’s robust performance earlier this year, when it outperformed most of its peers in the Group of 7 industrialized nations.

But growth has since stalled, hit by a slump in exports amid economic woes in Europe and a damaging territorial spat with China, both major trading destinations for Japan. A strong yen has also hurt competitiveness among Japanese exporters.

At home, the pace of reconstruction after the earthquake, tsunami and nuclear disaster of March 2011 appears to be slowing. Private consumption declined at the largest rate since early 2011.

“These are tough numbers,” Prime Minister Yoshihiko Noda told a parliamentary session Monday. He said the government, which has led the post-disaster reconstruction effort with ¥20 trillion, or $252 billion, in spending, would consider further measures “with a sense of urgency.”

Still, some economists say they expect the Japanese economy to continue to shrink in the next quarter, pitching it into recession before conditions improve.

“Japan’s recovery since both the Lehman shock and the Tohoku earthquake appears to have halted lately,” and Japan now appears headed for recession, Masamichi Adachi, economist for Japan at J.P. Morgan Securities, said in a research note after the G.D.P. numbers were released.

“The recession is likely to be short, however, as a resumption of positive growth from the first quarter next year is expected with a pickup in external demand, and associated firming in domestic private demand,” Mr. Adachi said.

Economists at the Mizuho Research Institute in Tokyo also predicted that a recession was probable but would probably be short-lived.

“Although the Japanese economy will face harsh challenges for the time being, the situation is likely to bottom out by the end of the year,” the economists said in a note. “A rebound in economic indicators in the United States and China suggests that Japan’s exports will also bottom out by the year’s end, so the possibility that the economy will continue to retrench in the new year is low.”

If, however, Japan’s rocky relations with China were to worsen, the recovery could take longer, the economists said. A spat over a group of islands in the East China Sea that are claimed by both nations has prompted some Chinese consumers to boycott Japanese brands, casting a pall over Japan’s exports to its neighbor.

The numbers Monday also put renewed pressure on the Japanese central bank to do more to shore up the economy. The central bank, the Bank of Japan, eased monetary policy last month for the second month in a row by expanding an asset lending program, after government officials had urged the bank to take more drastic steps to keep economic recovery on track.

The bank, which has struggled over the past decade in its efforts to kick-start the Japanese economy and tackle persistent deflation, is set to review monetary policy again next week.

“The government must pursue various measures to address fiscal woes, ease regulations and bolster economic growth. But I would also like the Bank of Japan to take powerful monetary easing measures to get the country out of deflation,” Seiji Maehara, the economics minister, told a news conference Monday.

With its mature economy and declining population, Japan, which now has the world’s third-largest G.D.P. behind that of the United States and China, faces being further eclipsed by its Asian neighbors.

In a report published last week on long-term economic trends, the Organization of Economic Cooperation and Development said Japan would continue to grow but at a sluggish rate, and its share of global economic output would fall far behind that of fast-rising China and India over the coming decades.

Article source: http://www.nytimes.com/2012/11/13/business/global/japanese-economy-contracts-suggesting-return-to-recession.html?partner=rss&emc=rss