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Japanese economy contracts; economists, officials predict a recession

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TOKYO — Japan’s economy contracted 0.9 percent in the late summer, according to government data released Monday, as officials and economists here warned that the country appears headed toward a recession.

At an annualized rate, Japan’s gross domestic product shrank 3.5 percent, a reversal after two quarters of growth. The drop-off signals the major obstacles facing the world’s third-largest economy as it deals with weakened demand in Europe and a simmering diplomatic spat with China, both of which have hurt Japanese exports.

Japan’s exports for the quarter — a period between July and September — plummeted 5 percent, the steepest drop since immediately after the March 2011 earthquake and tsunami.

“In part, this may have been due to the anti-Japan demonstrations in China and the subsequent boycott of Japanese goods,” Barclays Economics Research wrote in a note after the data were released.

Economists predict that Japan’s economy will shrink again in the next quarter, leading to a technical recession. If Japan goes into recession, it would be its third since 2008, according to Bloomberg News.

“Judging from recent economic indicators, the possibility cannot be ruled out that the Japanese economy is already in a recessionary phase,” Seiji Maehara, Japan’s minister of state for economic and fiscal policy, told reporters.

A potential but modest recovery in 2013 could come if the world’s biggest economies — the United States and China — continue to rebound. “Going forward, developments in Japan’s economy will basically depend on those in overseas economies,” said Masaaki Shirakawa, the governor of Japan’s central bank.

Still, a series of factors are preventing the broader turnaround of an economy that has been stagnant for two decades. The short-term boost from disaster reconstruction appears to have waned. Japan has an aging population and a shrinking workforce, and its debt-to-GDP ratio is the highest among industrialized nations. That limits the ways that Japan can use additional fiscal stimulus to reboot its economy.

Japan also faces a fiscal cliff, with a political standoff preventing parliament from passing debt-covering legislation for this year’s budget.

The numbers released Monday could spur the Bank of Japan to lower its GDP forecast of 1.5 percent growth for the fiscal year, which started April 1. To hit that target, Barclays said in its note, Japan’s economy would need to grow 3.9 percent in each of the last quarters — “virtually impossible, in our view.”

Prime Minister Yoshihiko Noda told parliament on Monday that the data were “severe” and that Japan would “respond with a sense of crisis.”

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