Japan fell into deeper recession in Q3

Japan fell into a deeper recession in the third quarter than first thought, the government said Tuesday, as exports weakened, domestic demand fell and companies bracing for a prolonged downturn pared inventories.

The Cabinet Office said that Japan's economy shrank at an annual pace of 1.8 per cent in the July-September period, compared with its original estimate of a 0.4 per cent contraction.

The figure was much worse than market expectations for a 0.9 per cent decline in gross domestic product (GDP), underscoring the severity of the slump that the world's second largest economy is mired in.

The data also confirms that Japan slipped into recession in the third quarter after GDP contracted an annualised 3.7 per cent in the April-June period. A recession is commonly defined as two consecutive quarters of negative growth, though many economists using other parameters say that the current downturn actually began in late 2007.

"The revision was large, but the implication is limited, as there is no need to change our assessment of the economy, which has been in recession since (the) end of last year," said Masamichi Adachi, senior economist at JP Morgan Securities in Tokyo, in a report on Tuesday.

With business conditions deteriorating, companies are likely to reduced their inventories to cut running costs, the Cabinet Office said, according to Kyodo news agency.

Overall weakness in the third quarter stemmed largely from a sharp pullback in corporate investment amid the unfolding global financial crisis. For export-reliant Japan, the deep slump in global demand for its cars and gadgets has taken a particularly heavy toll.