Tokyo - Japan's economy contracted at the fastest pace in 35 years in the fourth quarter as a collapse in export demand drained life from the world's second-biggest economy.
Japan's gross domestic product, or the total value of the nation's goods and services, dropped at an annual pace of 12.7% in the October-December period, the government said on Monday.
That's the steepest drop for Japan since the oil shock of 1974 and far outpaces declines of 3.8% in the US and 1.2% in the eurozone. A survey of economists by Kyodo news agency had projected an 11.6% contraction.
Japan now faces "the worst economic crisis in the postwar era," said Economy Minister Kaoru Yosano, according to Kyodo.
Already, Toyota, Sony and a slew of other companies have announced deep job cuts and projected net losses for the full fiscal year through March. The yen's appreciation, which erodes income from abroad has only intensified the pain.
Japan's economy has now contracted for three straight quarters. Compared to the third quarter, GDP fell 3.3%. If that rate continued for a full year, the economy would contract 12.7%.
For all for 2008, it shrank 0.7% - the first decline in nine years, according to the Cabinet Office.
Martin Schulz, an economist at Fujitsu Research Institute in Tokyo, said the three main pillars that lifted Japan out of the so-called "lost decade" of the 1990s had crumbled - favourable exchange rates, overseas investment and demand, and old industry such steel, cars and chemicals.
'Economy is paying the price'
"The recovery was unsustainable," Schulz said. "It was built on a major global bubble, and now basically the economy is paying the price."
Japan's exports plummeted a record 13.9% in the fourth quarter from the third quarter, the government said, as the deepening global slowdown choked off demand for the country's cars and gadgets. Capital expenditure - business investment in factories and equipment - fell 5.3% from the previous quarter, while consumer spending slipped a modest 0.4%.
The figures underscore the vulnerability of Asia's export-driven economies during global downturns and point toward more cuts in jobs, production and profits in the coming months. Even demand from emerging markets, which earlier had partly offset declines in North America and Europe, began falling sharply in the fourth quarter.
Last week, electronics company Pioneer said it will cut 10 000 jobs globally, joining a growing list of the country's corporate giants scrambling to slash their payrolls. Sony is shedding 8 000 workers, while Nissan and NEC are each cutting 20 000 people.
Japan slipped into recession in the third quarter after its economy contracted two straight quarters - a common definition of recession - though many economists using other parameters say that the current downturn actually began in late 2007.
In its latest forecast, the International Monetary Fund predicts Japan's economy will shrink 2.6% this year, outpacing the 2% overall decline it expects for advanced economies. It projects growth in developing Asian countries to slow to 5.5%, compared with 10.6% just two years earlier.
Stimulus package
To revive the economy, Japan's parliament passed a contentious ¥4.8 trillion ($52.2bn) stimulus plan in January that includes a cash payout that amounts to ¥12 000 ($133) per Japanese taxpayer. Prime Minister Taro Aso - who faces dismal approval ratings - has championed the idea, saying it will stimulate sagging consumer spending.
But the public has generally panned the handouts as a lavish waste of public money with limited impact.
Kyohei Morita, chief economist at Barclays Capital in Tokyo, said Japanese policymakers tend to introduce measures to boost approval ratings rather than GDP, especially with mandated elections later this year.
"We cannot expect much from Japanese fiscal spending," he said. "But given the large negative (GDP) number, this will probably be a factor to make politicians think seriously about implementing a supplementary budget for (next fiscal year)."
Media reports over the weekend said Japan may be considering additional measures to shore up the economy with fresh spending likely to top ¥10 trillion ($109bn).
Japan's central bank, which lowered its key interest rate to 0.1% in December, has introduced various steps to try to thaw a corporate credit crunch. But there is little it can do to address the unprecedented decline in external demand.
The Bank of Japan policy board is scheduled to start a two-day meeting on Wednesday.
In stock trading, the benchmark Nikkei 225 index was down 0.5% at 7,741.31 in afternoon trading. The dollar was trading at ¥91.59, down from ¥91.87 late on Monday.
- AP