Japan Is The First Asia Country To Face Recession

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Japan, the second largest economy in the world, has become the latest country to officially slip into recession.

It joins Germany, Italy, Spain and Ireland on the list of major nations that have had two successive quarters of their economy shrinking.

Japanese shares ended slightly higher after a volatile day, starting lower but then recovering later as the yen grew weaker.

The benchmark Nikkei 225 stock average finished up 60.19 points, or 0.7%, at 8,522.58.

It sank nearly 250 points early in the session after gloomy gross domestic product figures, then bounced up about 550 points from there before coming back down at the finish.

The news that export-dependant Japan is in recession for the first time in seven years comes despite emergency steps by world powers to try to stem months of turmoil on the financial markets.

"Japan is as export-driven as ever. So as long as exports are slowing due to the weakness of the global economy, we cannot escape," said Kyohei Morita, economist at Barclays Capital, who expects the recession to last for four quarters.

The economy contracted 0.1% in the third quarter after shrinking 0.9% in the second.

The last time Japan fell into recession was in 2001 after the internet bubble burst.

The latest figures "showed that the economy is in a recession phase. There is a risk it may worsen further," warned Economic and Fiscal Policy Minister Kaoru Yosano.

"This is not going to be a short or painless recession," said Noriko Hama, a professor and economist at Doshisha University.

"When financial crises of this magnitude occur, as a rule of thumb we generally have a 10-year recession. We had that in the 1990s in Japan," she said.

Business investment has slumped 1.7% in the third quarter while exports were worse than expected, as the financial crisis triggered by a US housing slump squeezed other major economies.

Although Japan has not suffered financial turmoil on the same scale as the United States or Europe, its trade-dependent economy remains highly vulnerable to global downturns.

After suffering a series of on-off recessions in the 1990s, Japan had been slowly recovering on the back of brisk exports and business investment.

But corporate profits are now sliding as exports suffer from the global slowdown and a stronger yen, prompting companies to slash investment in new equipment and factories, which had been a key driver of economic growth.