By Jason Clenfield
Nov. 17 (Bloomberg) — Japan’s economy, the world’s second largest, entered its first recession since 2001 last quarter and the government and economists say conditions may get even worse.
Gross domestic product shrank an annualized 0.4 percent in the three months ended Sept. 30, the Cabinet Office said today in Tokyo. Economists predicted the economy would grow 0.1 percent after contracting a revised 3.7 percent in the previous period.
The slowdown may deepen as the global financial crisis hurts exports, prompting companies from Toyota Motor Corp. to Canon Inc. to slash profit forecasts and cut investments. Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180 percent of GDP, limiting the government’s ability to stimulate growth.
“It’s only going to get worse,” said Masamichi Adachi, senior economist at JPMorgan Chase & Co. in Tokyo. “Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.”
The Nikkei 225 Stock Average closed 0.7 percent higher, reversing declines of as much as 2.9 percent, as investors bought shares of drug and utilities companies, which are less vulnerable to a slowdown. The gauge has lost 43 percent this year. The yield on Japan’s 10-year bond fell two basis points to 1.48 percent.
The yen fell to 97.21 per dollar as of 4:16 p.m. in Tokyo from 96.09 before the report as a stock-market rally across Asia prompted investors to fund purchases of higher-yielding overseas assets in the Japanese currency. The yen has gained 9.2 percent since the end of September, compounding exporters’ woes.
The economy last contracted over two consecutive quarters — the technical definition of a recession — in 2001. Germany also fell into a recession last quarter, as did the entire euro zone, reports showed last week, and the U.S. is probably in one also.