Preliminary figures published by the Japanese Cabinet Office show the economy shrank by 0.9% between July and the end of September or by 3.5% annualised.
Although widely expected by the market, the fall was the largest to hit the country since the earthquake and tsunami of early 2011. The decline was driven by a fall in exports and a drop in consumer spending.
David Rea, Japan economist at Capital Economics, said: “Japan’s economy may already be in recession. The sharp fall in Q3 GDP was the first contraction this year but increasingly looks like it will not be the last.
“What’s more, the economy remains reliant on government support, without which the fall in GDP would have been even larger.”
Exports were the main reason for the third-quarter contraction, shaving 0.7 percentage points off growth. Japan’s exports have been affected by slowing growth on the global stage, while exports to China were undermined by tensions over the ownership of the Senkaku Islands in the East China Sea.
Speaking today at the Kisaragi-kai meeting in Tokyo, Bank of Japan governor Masaaki Shirakawa said: “Going forward, developments in Japan’s economy will basically depend on those in overseas economies.
“Japanese economic activity is expected to be more or less flat for the time being. Exports and production are likely to remain relatively weak for the time being and domestic demand as a whole is unlikely to increase at a pace that will outperform the weakness in exports.”
