Japan Nears Recession Amid China Boycott

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Japan (EUREX: FMJP.EX - news) is on course to enter recession as it battles against a tide of economic problems including a costly dispute with China.

The world's third-largest economy contracted by 0.9% between July and September from the previous three months - a fall which under-pressure Prime Minister Yoshihiko Noda described as "severe".

The latest predictions suggest a return to growth in the fourth quarter is very unlikely which would result in a technical recession.

A combination of the financial crisis in Europe (Chicago Options: ^REURUSD - news) , a strong yen and a Chinese boycott of Japanese goods are damaging recovery plans following the devastating earthquake and tsunami in March 2011.

The boycott was sparked by Japan's nationalisation in September of an East China Sea island chain claimed by both Tokyo and Beijing.

It has particularly hurt Japan's car producers - already damaged by the end of an incentive purchase scheme.

The worst September trade figures for three decades were compounded by an export-denting strong yen.

Mr Noda, who is under pressure to call a general election, told parliament he would work "with a sense of crisis" to address the country's economic woes.

"I have also been instructing ministers concerned to draw up an economic package, possibly this month," Noda said, as he pointed to the first £3.1bn tranche of a previously-announced stimulus.

Last month, the Bank of Japan unveiled £87bn in fresh monetary easing after central banks in the United States and debt-hit Europe also announced further measures to fuel growth.

The central bank, which also said it would provide new loans to banks, had been under pressure from politicians calling for urgent action and is facing calls for further stimulus.

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