Japan slid into its first recession in seven years in the third quarter as the global financial crisis and a strong yen erode exports.

Germany and the eurozone fell into recession last week, and few doubt the US economy is also shrinking. It would be the first time since the Second World War that the US, European and Japanese economies have gone into recession simultaneously.

Japan's GDP contracted by 0.1% in the September quarter and 0.4% in annualised terms, against a consensus forecast of 0.3%.

A string of Japan's best-known companies, including Toyota, Sony and Canon, have seen sales slump in their key US market, leading to profit warnings. The gloom has even spread to Japan's Asian markets, such as China, where demand is also contracting rapidly.

“It's only going to get worse,” said Masamichi Adachi, senior economist at JPMorgan Chase in Tokyo. “Japan may be entering its deepest recession in a decade as the global financial crisis cools demand overseas.”

Economy Minister Kaoru Yosano said: “The downtrend in the economy will continue for the time being as global growth slows. We need to bear in mind that economic conditions could worsen further as the US and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings.”

Tokyo's Nikkei Stock Average has fallen by 25% since the start of October, and the yen spiked to a 13-year high against the dollar last month.
Japan's second-quarter contraction was also revised in today's data to a larger 0.9% slide, the biggest such drop in seven years, and some analysts believe that GDP could fall for a full year.

The country's government has little room for manoeuvre. Interest rates are the lowest of all the 20 biggest economies, and public debt is more than 180% of GDP. Exports rose just 0.7%, less than the 1.2% expected, while imports climbed 1.9% as oil surged to a record in the quarter.

Toyota, which makes more than 75% of its sales abroad, forecast profit will fall this year by almost 70%, and is sacking 3000 employees. Canon, the world's largest camera maker, last month forecast profit growth would drop for the first time in nine years, and said it will cut capital spending by 4.7%.