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The Cabinet Office’s statistics show that the Japanese economy is in a serious recession. In the October- December quarter, gross domestic product in real terms shrank by 3.3 percent from the previous quarter or an annualized 12.7 percent.

This figure is only slightly less than the worst-ever annualized shrinkage of 13.1 percent recorded during the first oil crisis in the January-March quarter of 1974. As Economic and Fiscal Policy Minister Kaoru Yosano said, Japan is now facing the greatest economic crisis since the end of World War II.

Alarming is the fact that the Japanese economy’s fall is much more severe than that of other developed countries. By comparison, U.S. real GDP shrank an annualized 3.8 percent in the fourth quarter of 2008 and the real GDP of the euro-zone economy fell by an annualized 5.9 percent.

The weakness of the Japanese economy, which greatly relies on exports and is not strongly underpinned by domestic demand, has come to the fore. Exports in the fourth quarter of 2008 dropped by 13.9 percent from the previous quarter or an annualized 45 percent — an unexpectedly large drop. Net exports, which are computed as exports minus imports, pulled down real GDP by 3 percent from the previous quarter.

Household spending decreased by 0.4 percent from the previous quarter or an annualized 1.7 percent. Corporate equipment spending went down by 5.3 percent, or an annualized 19.5 percent, showing that enterprises have gloomy prospects about future demand for their products and services.

The government needs to work out projects that spur long-term growth as well as work toward quick implementation of the second supplementary budget for fiscal 2008 and the fiscal 2009 budget. Enterprises should rethink the temptation to scale down production and dismiss workers in a panicky fashion. Such moves will lead to a further contraction of the whole economy. They need to retain enough manpower and production equipment, while continuing research and development so that they can effectively cope with the future economic recovery.

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