Japan risks longest contraction ever

By Leika Kihara

TOKYO (Reuters) - Japan slid into its first recession in seven years in the third quarter as exports crumbled, and some analysts said an escalation in the global financial crisis may have put the economy on course for its longest ever contraction.

The 0.1 percent contraction in July-September gross domestic product barely captured the impact of the financial fire-storm that began in mid-September, wrecking Wall Street banks, triggering a stock market crash in Tokyo and a yen rally that may hit exporters even harder.

The euro zone is also in recession, using the common definition of two consecutive quarters of contraction, and the U.S. economy is expected to follow, having shrunk in the third quarter.

Recession in industrialised economies underscores the challenge facing world leaders who backed a plan on Saturday to combat the global crisis by stimulating growth, although they failed to impress markets.

Some economists said Japan, the world's second-largest economy, could be headed for a record four quarters of shrinking output while Economy Minister Kaoru Yosano warned of increasingly tough times ahead.

"The downtrend in the economy will continue for the time being as global growth slows," Yosano told a news conference.

"We need to bear in mind that economic conditions could worsen further as the U.S. and European financial crisis deepens, worries of economic downturn heighten and stock and foreign exchange markets make big swings."

Tokyo's Nikkei share average has fallen by a quarter since the start of October, potentially denting consumption, and the yen spiked to a 13-year high against the dollar last month, hitting exporters.