Japan Sinks Into Recession as Abe Calls for More Stimulus

Japan’s Economy Contracts More Than Forecast in Third Quarter
Customers shop for seafood at a market in the Ueno district of Tokyo, Japan. Photographer: Kiyoshi Ota/Bloomberg

Japan’s economy sank into recession in the second and third quarters, fueling opposition leader Shinzo Abe’s calls for more stimulus and highlighting the risk that weak growth will derail a planned sales-tax rise.

Gross domestic product shrank an annualized 3.5 percent in the three months through September, the Cabinet Office’s second estimate showed in Tokyo today, matching a preliminary reading. The government revised the previous quarter to a 0.1 percent contraction, meeting the textbook definition of a recession.

Abe, whose Liberal Democratic Party is leading in polls to win elections on Dec. 16, has called for more fiscal stimulus and “unlimited” monetary easing, and has said that economic conditions next year will determine whether the sales tax rise goes ahead. Banks including Citigroup Inc. forecast another contraction this quarter as exports fall and domestic demand stays weak.

“It’s likely that Japan’s economy hit bottom in the last quarter,” said Shuichi Obata, senior economist at Nomura Securities in Tokyo. “The new government will aim to have solid growth by the middle of next year as they have to decide whether to raise the sales tax or not.”

The yen was trading at 82.44 per dollar as of 2:57 p.m. in Tokyo, having weakened about 3.6 percent in the last month. The Nikkei 225 Stock Average was down 0.1 percent, paring gains of as much as 0.6 percent, while the broader Topix index slipped 0.4 percent.

Economic Contraction

The median estimate of 21 economists surveyed by Bloomberg News was for a 3.3 percent drop in third-quarter GDP. The economy will shrink an annualized 0.4 percent in the October-to-December period and grow 1.6 percent in the following three-month period, according to economists’ median estimates.

A technical recession is defined as two consecutive quarters of contraction. Japanese recessions are officially defined by a government-charged panel that considers data beyond figures for GDP.

Japan’s current account surplus fell less than expected in October, separate data from the Finance Ministry showed today. The surplus on the current account, the widest measure of trade, was 376.9 billion yen, compared with 503.6 billion yen the previous month.

Japanese manufacturers such as Sharp Corp. and Honda Motor Co. are grappling with weaker earnings after a strong yen, slow European demand and anti-Japanese demonstrations in China hurt exports.

Profit Warnings

Nissan Motor Co. and Honda cut their profit forecasts for the year ending March 2013 by about 20 percent, citing a slump in China sales.

The sales tax bill raises the levy to 8 percent in April 2014 and to 10 percent in 2015, and a clause allows for implementation to be canceled based on an assessment of economic conditions. The last sales tax increase in 1997 contributed to pushing the economy into a 20-month recession, costing then-premier Ryutaro Hashimoto his job.

From the previous quarter, the economy shrank 0.9 percent in the July-September period, unchanged from the government’s initial forecast, today’s report showed.

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