Japan's economy slips into recession

December 10, 2012: 5:31 AM ET
tokyo street
Japan is now in a recession.
HONG KONG (CNNMoney)

Japan's gross domestic product has dropped for two straight quarters, pushing its economy into a recession, according to fresh government data released Monday.

Revised figures from Japan's Cabinet Office show the economy contracted at an annual rate of 3.5% from July to September. GDP for April to June, previously rated as a small expansion, was revised lower to an annual contraction of 0.1%.

Economies are commonly described as being in a technical recession after two straight quarterly contractions. But many countries -- Japan included -- rely on advisory panels to define the length and starting point of recessions.

Economists are increasingly pessimistic about Japan's economy, and many expect GDP to contract in the current quarter as well. The third-largest economy in the world, Japan has suffered from weak exports, a trade spat with China and continued fallout from last year's nuclear disaster and tsunami.

The country's debt-to-GDP ratio is the highest in the world. And much like in the United States, its leaders do not agree on the path most likely to restore growth.

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The disappointing revisions come as Japan prepares for an election that could affect monetary and fiscal policy in the country.

Prime Minister Yoshihiko Noda dissolved the lower house of parliament last month, calling for new elections set to take place next week.

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Based on current forecasts in Japan, neither of the two main parties is likely to secure enough votes in the election to form a majority government. One possible outcome is a coalition government with LDP leader Shinzo Abe as prime minister.

Abe has held the post in the past, but stepped down citing health reasons in 2007 after only a year in office. If elected, Abe would likely push the Bank of Japan to relax monetary policy and adopt a higher target for inflation.

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