Tokyo’s release of data for Q3 indicated an economic contraction of 1.6 percent. This was unexpected;  after the previous quarter revealed a massive contraction of 7 percent, economists predicted a rebound back into positive GDP growth of at least 2 percent. Instead, Japan’s economy has incurred two consecutive quarters of negative GDP growth, thus meeting the technical definition of an economic recession.

Japan’s Prime Minster, Shinzo Abe, was supposed to have engineered a recovery from Japan’s two decades of stagnation and recessions through his economic policies, dubbed Abenomics.  Yet, after massive monetary intervention by the Bank of Japan, significant deficit spending and the trashing of Japan’s currency, the Yen, the end result is another recession.

Japan’s recession has led to the calling of new elections in Japan. The repercussions of the recession are not only political. Abenomics was supposed to put Japan back on the path to economic growth, allowing Tokyo to raise sale tax rates so as to begin coping with the nation’s massive structural deficit. With Japan now in recession, any policy measures designed to tackle the nation’s acute fiscal challenges have likely been placed on the back burner indefinitely.

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In the third quarter of 2014 the Japanese economy lost 1.8 percent of its GDP. This exceeds the growth of 1.5 percent in Q1 of 2014. In other words, for the first half of 2014, on a net basis the overall Japanese economy lost  about half a percent of its annual GDP.

Some commentators have blamed the decline on specific public policy measures,  such  as a large increase in the national sales tax in April, which was implemented to cope with Tokyo’s staggering fiscal deficit and public sector debt. However, it seems more likely that the tax increase sparked the growth in GDP in Q1 as shoppers sought to beat the tax increase, rather than depressing consumer demand in Q2.

On balance, the worse than expected Japanese economic data confirms that Japan remains mired in economic stagnation, despite a multiplicity of stimulus measures enacted by various Japanese governments, and most recently by current Prime Minister  Shinzo Abe, in addition to loose monetary policies adopted by the Bank of Japan. In the meantime, tensions are rising between Japan and its major trading partner, China. That will only worsen the plight of  the Japanese economy.

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Japan’s economy registered modest GDP growth and the highest rate of inflation in five years, according to October’s data. Even with the higher level of price inflation, core inflation may barely exceed an annualized rate of one percent. The Japanese economy has been experiencing an L-shaped recession for the past two decades, with strong deflationary pressures. Accordingly, the Bank of Japan has been pushing for higher inflation, so the recent data is in line with BOJ policy goals.

While some observers are claiming that the recent news shows signs of some positive trends in the long-stagnating Japanese economy, it must be remembered that whatever paltry GDP growth is occurring is a function of the highest national debt to GDP level of any major advanced economy (in excess of 200 percent), while the uptick in exports is facilitated by a deliberate weakening of the yen, a monetary measure that can always be offset by similar steps undertaken by Japan’s competitors in the global marketplace. In addition, Japan’s dismal demographic situation is not getting better, and add in renewed tensions  with China over disputed Islands in the East China Sea, and one can discern that the nascent  and very tentative upturn in Japanese economic activity is highly fragile.

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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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Japan, now the third largest economy in the world (China has recently assumed the spot of number two) is continuing to accrue worrying economic metrics.  For the first time in nearly two years, export-dependent Japan incurred a trade deficit. According to Tokyo, the nation incurred a $5.7 billion negative trade balance in January. The trade figures, however, were not the only troubling development on  Japan’s economic front.

Moody’s has just lowered Japan’s debt rating from stable to negative. This comes in the wake of Standard & Poor’s downgrading Japanese public debt from AA to AA-.  Japan has the developed world’s highest  ratio of public debt to GDP, a figure approaching 200 percent. These recent developments portend the growing risk of a sovereign debt crisis confronting Tokyo.  A growing number of investment fund managers are warning that the current trajectory of Japan’s public debt and annual government deficits is unsustainable. Could Japan become the Greece and Ireland of the Far East? These negative metrics, in conjunction with Japan’s aging  and declining population, point to a deepening economic and fiscal crisis for the land of the rising sun.

The Japanese economy never did recover from the implosion of its banking sector in the 1990s. Tokyo decided to artificially maintain its banks on life support, precipitating the country’s notorious L shaped recession. Now that the  global economic crisis has done its share of damage to Japan’s export machine, Japan looks to endure a second miserable decade of economic recession and stagnation.

The latest economic indicators out of Tokyo show manufacturing output having declined  nearly 2 percent in September, the 4th straight month of industrial decline. More worrisome, the figures also show the Japanese economy experiencing its 19th consecutive month of  declines in core consumer prices. As all economists are aware, deflation is a dragging on the consumer sector of the economy, inhibiting individual consumers from executing major purchases. This explains the weak domestic demand in Japan, and with a rising yen threatening exports, it is no surprise that the prognosis for the Japanese economy is very grim.

As the United States has largely replicated Japan’s strategy in the 1990s of propping up insolvent banks at all costs,  it may be that what the Japanese economy is enduring is also a harbinger of the long-term economic path for the United States.

Yukio Hatoyama, whose Democratic Party won a landslide election over the long-serving Liberal Democratic Party, has been officially elected by the Japanese Diet as the nation’s new Prime Minister. His number one priority is the ailing Japanese economy. Accordingly, his selection for the pivotal post of Finance Minister was clearly an appointment of the greatest importance.

The new Finance Minister of Japan is Hirohisa Fuji, a 77 year-old veteran politician and Finance Ministry bureaucrat, who had previously served as Finance Minster in the 1990s. He is reputed to be a fiscal conservative, who seeks to reduce government spending and bring Tokyo’s massive public debt under control. His challenge will be confronting the election promises emanating from his own political party, which has promised to increase social spending. Though this promise is based on the belief that economies can be found by eliminating wasted spending and massive stimulus allocations on behalf of corporate Japan, there are risks involved in pursuing this policy course.

With Japan’s export machine badly hurt due to the global contraction in trade, the agenda of the new power elite in Tokyo risks a double-dip recession.  Furthermore, the challenge of tackling a debt to GDP ratio of nearly 200% seems overwhelming. With one of the most rapidly aging populations on earth and a very low birth rate, it seems nothing short of draconian spending cuts will succeed in reducing Japan’s debt burden to manageable levels. But in order to pursue that course, Prime Minister Yukio Hatoyama will have to jettison most of his campaign spending promises.

Perhaps Japan’s new Prime Minster may seek economic advice from his wife, who has publicly claimed she was transported to the planet of Venus during one of her dreams. I raise this suggestion, as it appears that a solution to Japan’s deep and apparently insoluble economic crisis requires both a dreamlike state and an out-of -this-world solution if there is to be any prospect of a resolution without the dire risk of national insolvency.

According to the most recent data, Japan’s industrial production dropped by more than 8 % in November from the previous month. This is the steepest one-month decline in Japanese industrial output on record, and is directly related to the demand destruction resulting from the global economic crisis. Japan’s economy is largely based on export-driven manufacturing, so the latest economic data indicates that worldwide demand for Japanese manufactured products is dropping like a lead stone.

Japanese automakers are among the major producers that have seen a sharp decline in orders for their products from overseas customers, especially in the United Sates. Many analysts and economists are issuing dire forecasts that the Japanese economy, highly dependent on export-driven trade, will contract sharply as the Global Economic Crisis grows more severe

“Production is falling off a cliff,” said Naoki Iizuka, a senior economist in a statement to the Reuters news agency. “The Japanese economy is unlikely to bottom out until October-December next year as output is expected to remain very weak until then,” he added, reflecting the gloomy cloud now hanging over the world’s second largest economy.