Data released today showed growth in Japan grinding to a halt in the fourth quarter and the country's central bank said the risk of more setbacks had grown.
The Ministry of Economy, Trade and Industry (METI) said its all-industries index rose 0.4 per cent in November from the previous month, with a 0.6 percent rise in the service sector outweighing a 0.8 per cent decline in industrial production.
But economists said the index, a rough proxy for gross domestic product (GDP), was down about 0.4 per cent in October-November from July-September, suggesting a possible decline in GDP in the fourth quarter.
They had been expecting a marginal increase of 0.1 per cent in the November index but said the outcome did not alter the basic picture of an economy that was losing momentum because of still-stagnant domestic consumption and faltering exports.
Noriko Hama of Mitsubishi Research Institute said the data were falsely reassuring as the economy had stumbled badly since November.
"The overall situation has rapidly deteriorated since then -- the horror stories have yet to show up in the indices but they will do so," Mr Hama told reporters.
Mr Peter Morgan, chief economist at HSBC Securities, said the year-on-year rise in the index of 2.1 per cent was the smallest since October 1999, pointing to a slowdown.
The October-November level was 0.4 per cent below the July-September level, pointing to a possible fall in GDP in the fourth quarter, Mr Morgan said in a note to clients.
That would spell a return to recession - defined as two straight quarters of contraction - if, as widely expected, GDP figures for July-September are revised to show a sharp fall.
Reuters