Japan economy shrinks as recession risks grow

TOKYO, Nov 15 (Reuters): Japan's economy contracted in July-September, snapping two straight quarters of expansion on soft consumption and exports, complicating the central bank's efforts to gradually phase out its massive monetary stimulus amid rising inflation.
The data suggests stubbornly high inflation is taking a toll on household spending, and adding to the pain for manufacturers from slowing global demand including in China.
"Given the absence of a growth engine, it wouldn't surprise me if the Japanese economy contracted again in the current quarter. The risk of Japan falling into recession cannot be ruled out," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The weak growth and the spectre of slowing inflation could delay the BOJ's exit from negative interest rates," he said.
Gross domestic product (GDP) in the world's third-largest economy contracted 2.1 per cent in the third quarter, government data showed on Wednesday, a much larger decline that a median market forecast for an annualised 0.6 per cent fall. It followed an expansion of 4.5 per cent in the previous quarter.
The weak reading reflects lacklustre consumption and capital expenditure, dashing policymakers' hopes for a post-pandemic rebound in domestic activity to offset weaker external demand from China and elsewhere.
Consumption was flat in July-September after sliding 0.9 per cent in the previous quarter, falling short of economists' median estimate for 0.2 per cent growth.
Capital expenditure fell 0.6 per cent in the third quarter after declining 1.0 per cent in April-June, confounding market forecasts for a 0.3 per cent gain and casting doubt on the BOJ's view that robust corporate investment will underpin growth.