Japan economic data sparks recession fears

Japan's economy shrank in the September, fuelling fears the country is slipping into a recession. Source: AAP

JAPAN has confirmed the world's third-largest economy shrank in the three months to September, fuelling fears the country is slipping into a recession.

Financial turmoil in Europe, a strong yen that has weakened exports and a painful diplomatic row with major trade partner China have harmed Japan's economy, dousing hopes of a firm recovery after the 2011 quake-tsunami disaster.

Some economists warn the current quarter is likely to see another contraction, meaning two successive quarters of negative growth that equate to a technical recession.

On Monday, official data confirmed earlier figures that showed Japan's economy shrank 0.9 per cent in the July-September quarter, or down 3.5 per cent on an annualised basis.

Revised figures from the Cabinet Office also showed the nation's growth in the previous quarter was essentially flat, further underscoring recession fears.

Separate data released on Monday shows Japan's current account surplus was down about 30 per cent on last year to Y376.9 billion ($A4.38 billion) in October, although the latest figure beat market expectations for a 218 billion yen surplus, according to Dow Jones Newswires.

The current account is the broadest measure of Japan's trade with the rest of the world, including exports, tourism and overseas income.

Japan's current account surpluses have been hit by a slowing global economy and a spike in fuel imports due to the shutdown of most of the country's nuclear reactors following last year's disaster which triggered a major atomic crisis.

Last month, Tokyo approved $US10.7 billion ($A10.25 billion) in fresh spending to help boost the limp economy, more than double a package announced in October.

The new package was announced as the nation prepares for December 16 elections which are expected to see Prime Minister Yoshihiko Noda and his Democratic Party of Japan defeated by the main opposition Liberal Democratic Party led by Shinzo Abe.

Abe has vowed to spend heavily on public works and pressure the Bank of Japan into launching aggressive monetary easing measures to boost growth if his party wins the election.

The BoJ has unveiled two policy easing measures in recent months as its counterparts in the US and Europe launched major moves to counter slowing growth.

The yen has been weakening as speculation grows that the BoJ will take more action after its policy meeting this month, with the central bank's closely-watched Tankan corporate sentiment survey due this week.

"The BoJ will have no choice but to consider additional monetary easing in case its own Tankan survey shows worsening in near-term corporate sentiment," said RBS Securities chief Japan economist Junko Nishioka.

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