Japan's economy contracted in the July to September quarter, as a global
economic slowdown and anti-Japan protests in China hurt its exports, while
domestic consumption remained subdued.
Gross domestic product (GDP)
contracted 3.5% from a year earlier.
Compared with the previous three
months, the economy contracted 0.9%.
The weak data is likely to put
pressure on the government to boost stimulus measures to spur growth.
"There are risks from both
domestic and external factors," said Tatsushi Shikano, senior economist at
Mitsubishi UFJ Morgan Stanley Securities in Tokyo.
"As such, the Bank of Japan
(BOJ) will stand ready to ease monetary policy again, and it would not surprise
me if the BOJ eased again by the end of this year."
Heading for recession?
Japan's economy, the world's
third-largest, has been trying to recover from last year's earthquake and
tsunami, which caused widespread destruction in the country.
However, its recovery has been
hampered by a combination of factors.
A slowdown in key markets, such
as the US and eurozone has hurt demand for its exports, one of the biggest
drivers of Japanese growth.
Slowing growth and anti-Japan
protests in China - Japan's biggest trading partner - have further impacted its
export sector.
To add to its woes, the debt
crisis in the eurozone and weak recovery in the US have seen many investors
flock to safe-haven assets such as the yen, resulting in the Japanese currency
strengthening against the US dollar and the euro.
The yen has risen 5% against the
US dollar since March this year and 8.5% against the euro during that period.
That makes Japanese goods more
expensive for American and European consumers, hurting the earnings of the
country's exporters.
To make matters worse, attempts
by policymakers to boost domestic demand have had little effect. Private
consumption fell 0.5% in the July to September quarter, from the previous three
months.
Analysts said that given these factors
the economy was likely to shrink further in the current quarter and enter a
technical recession.
"The decline in exports
seems large. Consumption and capital expenditure were also weak, showing that
both external and domestic demand are weak," said Yasuo Yamamoto, senior
economist at Mizuho Research Institute in Tokyo.
"Economic data deteriorated
sharply from September, and this means Japan is already in recession," he
Focus on yen
Faced with slowing external and
domestic demand, Japan's central bank has taken various steps to try and spur
growth.
Earlier this month, the BOJ
extended its asset purchase programme by 11 trillion yen ($138bn; £86bn). Under
the programme, the central bank buys bonds to keep long-term borrowing costs
down.
It also said that it will offer
unlimited loans to banks to encourage lending in an effort to boost domestic
consumption.
However, analysts said the
measures were unlikely to have a major effect, not least because firms were
holding back expansion plans in the wake of an uncertain economic environment.
"There is very little demand
for credit. In fact Japanese firms are holding back on capital
expenditure," Junko Nishioka, the chief economist of RBS Securities in
Tokyo, told the BBC.
Ms Nishioka added that
policymakers instead needed to focus on measures that will help weaken the yen,
as the uncertain global economic environment was likely to see the Japanese
currency, which is seen by some as a safe-haven asset in such times, remain
strong.
http://www.bbc.co.uk/
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