(Adds Reuters poll)
By Hideyuki Sano
TOKYO, Dec 4 (Reuters) - Japan's economy probably contracted
more than initially estimated in the third quarter, a corporate
survey signalled on Thursday, and analysts warn the world's No.2
economy could stay in recession well into next year.
A Reuters poll showed economists now expect third-quarter
gross domestic product shrank 0.2 percent, more than preliminary
government data showing a fall of 0.1 percent.
Analysts also said Japan, which has relied on exports to make
up for weak domestic consumption, looks set to go through an even
bigger contraction in the fourth quarter as the financial crisis
pushes the world into its sharpest slowdown in decades.
"With the decline in capital spending this big, it's likely
that third-quarter gross domestic product will be revised down,"
said Kyohei Morita, chief economist at Barclays Capital.
"There's a growing chance that Japan's economy will remain in
recession until the second quarter of next year."
Japanese companies cut spending on plant and equipment by 13
percent in July-September compared with the same quarter a year
earlier, the Ministry of Finance survey showed.
Although the fall was exaggerated by changes in accounting
rules on leasing, the data is closely watched as it is used in
calculating revised July-September GDP, due out on Dec 9.
The economy contracted 0.9 percent in the second quarter, its
sharpest quarterly fall in seven years, and the two quarters
together tipped Japan into recession, going by a widely used
definition of two straight quarters of contraction.
The ministry survey also showed Japanese companies' profits
dropped 22.4 percent from a year ago, the sharpest such fall in
six and a half years.
The real test for the economy, say economists, will be
reflected in figures for October-December and the following
quarter, when Japan will likely face the full impact of the sharp
downturn in the world economy.
"Until July-September, the fall in profits was driven by
rising costs. But exports and output are falling on a plunge in
demand," said Hiroshi Watanabe, a senior economist at Daiwa
Institute of Research.
Recent data showed Japanese companies are halting production
at an unprecedented pace as demand plunged not just in the United
States and Europe but also in emerging nations that had until
recently weathered the global financial storm.
Industrial production is seen posting the sharpest fall ever
in the fourth quarter as leading exporters such as Toyota Corp
slash output in the face of a sharp fall in global demand.
Adding to the painful slide in exporters' profits, the yen
has strengthened 13 percent against the dollar and 27 percent
against the euro since the end of September.
Fears are growing that Japan's recession could last longer
than ever before. The previous record was three quarters in a
row, as in the last contraction seven years ago in the wake of
the dot.com bust.
Some analysts speculate the Bank of Japan will cut interest
rates again by the end of the current business year next March,
after a trim to 0.30 percent from 0.50 percent in October,
although derivative contracts are not pricing in a significant
chance of that happening.
The BOJ said on Tuesday it would expand lending by about 3
trillion yen ($32 billion) to help tide companies over during a
year-end credit squeeze, with Japanese credit spreads having
started to creep up in the past few months.
(Editing by Hugh Lawson)
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