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Japan’s economy has contracted for two consecutive quarters — for the first time since the three straight quarters of negative GDP growth through December 2001. Economic and Fiscal Policy Minister Kaoru Yosano admitted that the economy is in a recessionary phase.

Although the government decided on a ¥26.9 trillion economic stimulus package in October, it has meandered in working out the details of ¥2 trillion in cash benefits for households. It has not yet submitted a second supplementary budget for fiscal 2008 to the Diet. It must be blamed for its slowness to act.

Real GDP in the July-September period shrank by 0.1 percent from the previous quarter, or an annualized 0.4 percent, following a 0.9 percent (annualized 3.7 percent) drop in the April-June period. Although housing investment increased 4.0 percent, consumer spending and exports rose only 0.3 percent and 0.7 percent, respectively. Internal demand pushed up real GDP 0.1 percent while external demand (exports minus imports) pulled down real GDP by 0.2 percent.

Exports were helped by the effects of tax rebate introduced in the United States to help stimulate the economy. But consumption in the U.S. and Europe has been weakened by the worldwide financial crisis. In fact, the U.S. and eurozone economies shrank in the third quarter.

Personal spending, which accounts for about 55 percent of Japan’s GDP, was helped by special factors — a hot summer and the Beijing Olympic Games — which led to robust sales of air conditioners and flat-panel televisions. Reflecting lower corporate profits and pessimistic business prospects, capital investment fell 1.7 percent from the April-June period — a decline for three straight quarters and the biggest drop since the April-June 2007 period, which saw a 2.6 percent fall.

The global financial crisis is expected to inflict further damage on the real economy of major developed nations in the fourth quarter. Domestic consumers are unlikely to loosen their purse strings. The government should not lose any time in implementing effective measures to prevent further economic decline.

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