Japan slashes growth forecasts for Q3

Japan yesterday radically downgraded its growth estimates for the third quarter, raising the spectre that the Japanese economy could slip into recession again.

Growth forecasts were downgraded from 1.2 per cent for the three months between July and September, to 0.3 per cent, while the annualised growth rate was slashed from 4.8 per cent to 1.3 per cent. The cuts had earlier prompted the government in Tokyo to introduce a Y7.2tr fiscal stimulus package, which was announced on Tuesday. The money will be used to support job seekers and to provide subsidy extensions for energy-efficient goods.

Analysts yesterday said that the stimulus package was unlikely to lead to significant growth: "I expect the Bank of Japan and the Democratic Party government to do something that will have an immediate effect to keep the Japanese economy afloat,"

Yoshikiyo Shimane, chief economist at Dai-Ichi Life Research Institute, told Reuters

"It has been said the Japanese economy bottomed out this past spring, but the July-September figures confirmed that the recovery is very weak."

The Japanese government, which has been in power for three months, blamed a lack of private sector capital investment for the poor growth figures.

The yen recently hit a 14-year high against the US dollar, making Japanese exports more expensive in the US. Japan is also struggling again with deflation, which last month the government said had returned for the first time since 2006.