They said it. The "R" word.

[yamayamayama 2]

The world’s second-largest economy contracted 0.4 per cent in the third quarter, according to government figures, confirming its status as a nation in recession after two consecutive quarterly declines.

 

Following in the footsteps of the 15-nation Euro zone and joining the ranks of a growing number of countries hit by the downturn, Japan’s economic decline comes after months of major companies warning on profits and tumbling stocks.

 

Kaoru Yosano, Japan’s economy minister, said: “The economy is in a recessionary phase. The downtrend in the economy will continue for the time being as global growth slows.

 

“We need to bear in mind that economic conditions could worsen further as the US and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings.â€

 

Weakened demand for export goods combined with a strengthened yen resulted in Japan’s GDP shrinking by an annualised rate of 0.4pc last quarter, with Japanese stocks tumbling 42 per cent since the start of the year.

 

While Tokyo’s Nikkei 25 initially opened lower, the index recovered those losses to trade little changed as long-term investors bought up cheap stocks.

 

Masamichi Adachi, senior economist at JP Morgan Chase & Co in Tokyo, said: “It's only going to get worse. Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.â€

 

He added: “We are now looking for a severe recession, similar to that during Japan's own financial market crisis in 1997 to 1998, and to the current US recession, in terms of depth of real GDP contraction.â€