Results just released show that in Q3 of 2012 Japan’s economy contracted by nearly 1 percent, marking the second consecutive quarter of shrinking GDP. This data meets the technical definition of an economic recession, and actually continues more than two decades of recessions interspersed with bouts of stagnation and marginal growth.
Japan, currently the third largest economy in the world ( and for most of the past two decades the second largest) is trapped in a maze consisting of an L shaped recession driven by poorly conceived policymaking over the past 20 years. With its publicly subsidized zombie banks, the highest public debt to GDP ratio of any major advanced economy, worrisome demographics, unstable politics (another national election is looming), bad luck ( the Tsunami and earthquake) and growing friction with China put Tokyo in a vulnerable position. Further shocks could easily slide Japan from recession to full-blown economic depression.

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Tokyo has reported its second consecutive quarter of negative GDP growth, meeting the technical definition of an economic recession. Undoubtedly, the recent earthquake, tsunami and nuclear disaster exacerbated Japan’s already weak economic performance. Nonetheless, the trends were already bleak, but clearly are weaker in the wake of the recent disasters.
In the first quarter of 2011, the Japanese economy contracted at an annual rate of 3.7 percent. The return to recession in the world’s third largest economy will undoubtedly have negative repercussions on the trajectory of the overall global economic crisis. Furthermore, Japan already has the largest ratio of public debt to GDP of any advanced economy. The borrowing requirements of Tokyo are being further expanded due to the cost of reconstruction stemming form the earthquake and tsunami. A weakened economy coinciding with a worsening public debt crisis does not portend towards a positive overall outlook for the Japanese economy.
