Japan’s economy contracts, recession looming

The Japanese economy contracted at an annual rate of 3% between April and June. The fall is the first in over a year and the largest since the third quarter of 2001.

The country, whose economy is the second largest, appears to be on the brink of recession as analysts said demand for Japanese goods and services had fallen both at home and overseas.

A country is considered to be in recession when it experiences two consecutive quarters of declining economic output.

According to Kenichi Kawasaki, an economist at Lehman Brothers, the economy is without a doubt in a downturn.

As with other global economies, the Japanese economy has been hit by higher energy and food prices. The government has called on firms to increase wages to help boost spending.

Last month, in a bid to boost its economy, the Japanese Government revealed a stimulus package worth 11.7 trillion yen (£59 billion).

The package includes 2 trillion yen of fresh government spending, with 9 trillion yen in loan guarantees and aid for small businesses.

According to Michael Taylor, an economist at Lombard Street Research, Japan is not directly exposed to the credit crunch and a recession should be shallow and short-lived.

The news follows that from the Commerce Department who said US retail sales fell 0.3% in August, highlighting fears over the state of the world’s largest economy.

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