By Yuzo Saeki
TOKYO (Reuters) - Japan's economy shrank in the last quarter by its most since the first oil crisis in 1974, hit by an unprecedented slump in exports, which is likely to lead to more calls for extra stimulus.
Japan has not suffered much directly from the bursting of bubbles in U.S. credit and housing markets, but its heavy dependence on exports and persistently soft domestic consumption has led to a sharper contraction than other major economies.
As the rich world faces its worst downturn in decades, the Group of Seven (G7) policymakers pledged at the weekend to do all they could to combat recession.
Japan's economy shrank 3.3 percent, or an annualized 12.7 percent in the fourth quarter of 2008 -- three times the fall in gross domestic product in the same quarter in the United States, at the epicenter of the current global crisis.
With exporters cutting production and laying off staff and many retailers reporting sharp falls in sales, economists saw little hope of a bounce back for Japan.
"The data showed a severe picture of the Japanese economy and highlighted the weakness in exports," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The January-March quarter is likely to show another minus figure (annualized) in double digits or something close to double digits."
ADDICTION FEAR
Spooked by sliding U.S. Treasuries and reports that the heavily indebted Japanese government may be planning further big stimulus spending, March 10-year government bond futures fell a third of a point.
"There's no question that this is the worst recession in the post-war period," Economics Minister Kaoru Yosano told a news conference.
The government had to pursue all options to keep the economy afloat, he said, but he struck a cautious note on large scale spending, saying it could not get "addicted to pain killers."
The Nikkei share average fell 0.2 percent but the yen rose slightly, after the G7 omitted any reference to the currency's strength in its final communique.
The yen's 24 percent against Japan's key trading partners in the quarter has added to the pain for big exporters such as Toyota and Panasonic.
The big slide in Japanese GDP in the October-December quarter was its second-worst in modern times, lagging only a 3.4 percent contraction in 1974, after the first Middle East oil shock.
The contraction was bigger than economists' median forecast of a 3.1 percent fall and also worse than the downturn ensnaring all other major economic powers in the same quarter. Continued...
Official figures show that  has shrunk by 3.3% in the last quarter of 2008—or an annualized 12.7%, the fastest decline since 1974, when the economy contracted by 3.4% in a quarter. The decline in Japan has been sharper than in either Europe or North America, mostly because global demand for the country's products, such as automobiles and electronics, has fallen.

The contraction was also larger than the 3.1% decline that was predicted by economists, the worst decline of any major economic power in the same quarter.

Japanese Prime Minister In comparison, the   contracted 1.5% in the same quarter, and the United States GDP shrank by an annualized 3.8%.

"The data showed a severe picture of the Japanese economy and highlighted the weakness in exports. The January-March quarter is likely to show another minus figure annualized in double digits or something close to double digits," said the chief economist at Norinchukin Research Institute, Takeshi Minami.

There have been reports that Japanese prime minister Taro Aso is considering launching a 20 trillion  (approximately 218 billion) stimulus plan in response to the recession, but he is hindered by a divided parliament, and an approval rating which concurrently fell below ten percent.