Japan's economy is in a deep recession because its export machine has been battered by the global financial crisis, the International Monetary Fund said Thursday.
"Japan is experiencing a deep recession," the Washington-based multilateral institution said in a report to the Group of 20 developed and developing nations.
"While not at the epicenter of the crisis, Japan's exports have been hit hard by the slump in global demand, aggravated by the sharp appreciation of the yen," it said. "This has contributed to a steep decline in business investment and consumer confidence."
Japanese banks remain under stress from falling stock prices, owing to their large equity holdings, the IMF said, adding corporate bankruptcies are on the rise.
"Against this background, the Japanese economy is expected to contract by 2.5 percent this year, before modestly recovering in 2010, supported by fiscal stimulus and a pickup in global growth," it said.
The IMF prepared the report for a meeting of G20 finance ministers' deputies held in London on Saturday and Sunday ahead of a G20 summit in the British capital on April 2.
As one measure to combat the crisis, the IMF renewed a call for fiscal stimulus measures. The actions, some still in the planning stage, could "have a considerable impact on G20 growth in 2009 — on the order of 0.5 to 1.25 percentage points," it said.
Among advanced G20 economies, the growth impact is expected to be heaviest in Canada, Germany, Japan, South Korea and the United States, it said.