Japan enters first recession in seven years

Japan's economy, the second largest in the world, has entered its first recession in seven years as the global financial crisis batters exports and business investment, official data showed today.

Japan joins Germany and Italy on the list of major economies that are officially in recession, despite emergency steps by world powers to try to shield the global economy from months of turmoil on financial markets.

The Japanese economy unexpectedly contracted by 0.1 per cent in the three months to September, after shrinking 0.9 per cent in the second quarter of the year, according to figures from the Cabinet Office.

The data "showed that the economy is in a recession phase. There are risks it may worsen further," said Economic and Fiscal Policy Minister Kaoru Yosano.

It is the first time since the third quarter of 2001 that Japan has entered a recession, which is usually defined as two or more consecutive quarters of negative economic growth.

Gross domestic product (GDP) contracted at an annualised rate of 0.4 per cent.

Analyst forecasts, on average, had been for modest growth of 0.1 per cent quarter-on-quarter. Tokyo's Nikkei stock index fell 1.3 per cent in early trade.

Business investment slumped 1.7 per cent in the third quarter while exports were worse than expected, as the financial crisis triggered by a US housing slump squeezed other major economies.

"Japan was dragged down by the weakness in the global economy," said Kyohei Morita, chief Japan economist at Barclays Capital, who expects the recession to last for four quarters in total.