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Japan's economy slides further towards recession

The country's fifth in 15 years.

Japanese gross domestic product (GDP) contracted by 0.9 per cent between July and September, as anaemic domestic consumption dovetailed with stagnant western demand and souring relations with China to derail the world's third largest economy.

Shrinking at its sharpest rate since the Fukushima disaster in early 2011, Japan posted a 3.5 per cent contraction in GDP from last year.

Japan has been desperately seeking recovery from last year’s earthquake and tsunami, but despite robust growth in early 2012 – driven by the reconstruction of the country’s northeast in the wake of the disaster – a number of factors have significantly hampered recovery.

A 5 per cent fall in exports – a crucial driver of Japanese growth – accounted for the bulk of the third quarter contraction, comprising 0.7 percent of the 0.9 per cent fall in GDP.

Sluggish US recovery and the ongoing eurozone debt crisis weighed heavily on demand for exports, with technology titans Sony and Panasonic representing two of the many Japanese companies posting significant losses due to the ongoing global downturn.

Worse still, the deteriorating economic climate in the West has prompted numerous investors to pile into the yen, which is regarded as a safe-haven asset in the current environment. Accordingly, the yen has appreciated 5 per cent against the dollar and 8.5 per cent against the euro, rendering exports more expensive and thus less competitive.

Meanwhile, anti-Japanese sentiment in China – Japan’s primary trading partner – has reached fever pitch as the ongoing territorial dispute over the Senkaku-Diaoyu islands rages on. Widespread boycotts of Japanese goods have hit exports hard, particularly within the automotive sector, with Nissan, Honda, and Toyota all posting major losses.

Overall, Japan’s trade deficit reached a whopping ¥980bn (£7.8bn) in September – its largest in almost 30 years.

On the domestic front, modest stimulus measures by the Bank of Japan have had a hollow effect. Private consumption – which accounts for roughly 60 per cent of the economy – fell by 0.5 per cent in the third quarter.

“The decline in exports seems large. Consumption and capital expenditure were also weak, showing that both external and domestic demand are weak”, Yasuo Yamamoto, an economist at Mizuho Research Institute in Tokyo, told the BBC.

The figures are expected to be even worse for the final quarter of 2012, which has stoked fears of looming recession, defined as two quarters of sustained GDP contraction.

“I cannot deny the possibility that Japan has fallen into a recession phase”, Japan’s economy minister, Seiji Maehara, told reporters upon the release of the figures.

The data has piled pressure on the government to counteract the slide into recession. But with a 3.2 per cent decline in capital expenditure, economic malaise and the vice-grip of uncertainty are likely to continue stifling investment regardless of further stimulus plans.

“There is very little demand for credit. In fact, Japanese firms are holding back on capital expenditure”, Junko Nishioka, an economist at RBS Securities, told the BBC

Alex Ward is a London-based freelance journalist who has previously worked for the Times & the Press Association. Twitter: @alexward3000

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Is anyone prepared to solve the NHS funding crisis?

As long as the political taboo on raising taxes endures, the service will be in financial peril. 

It has long been clear that the NHS is in financial ill-health. But today's figures, conveniently delayed until after the Conservative conference, are still stunningly bad. The service ran a deficit of £930m between April and June (greater than the £820m recorded for the whole of the 2014/15 financial year) and is on course for a shortfall of at least £2bn this year - its worst position for a generation. 

Though often described as having been shielded from austerity, owing to its ring-fenced budget, the NHS is enduring the toughest spending settlement in its history. Since 1950, health spending has grown at an average annual rate of 4 per cent, but over the last parliament it rose by just 0.5 per cent. An ageing population, rising treatment costs and the social care crisis all mean that the NHS has to run merely to stand still. The Tories have pledged to provide £10bn more for the service but this still leaves £20bn of efficiency savings required. 

Speculation is now turning to whether George Osborne will provide an emergency injection of funds in the Autumn Statement on 25 November. But the long-term question is whether anyone is prepared to offer a sustainable solution to the crisis. Health experts argue that only a rise in general taxation (income tax, VAT, national insurance), patient charges or a hypothecated "health tax" will secure the future of a universal, high-quality service. But the political taboo against increasing taxes on all but the richest means no politician has ventured into this territory. Shadow health secretary Heidi Alexander has today called for the government to "find money urgently to get through the coming winter months". But the bigger question is whether, under Jeremy Corbyn, Labour is prepared to go beyond sticking-plaster solutions. 

George Eaton is political editor of the New Statesman.