Japan’s ‘Severe’ Recession May Last Three Years, Yoshikawa Says

By Toru Fujioka and Tatsuo Ito

Jan. 21 (Bloomberg) -- Japan’s recession may become the longest in the postwar era, according to Hiroshi Yoshikawa, head of the government committee that charts the economic cycle.

“We’d better get ready for a three-year recession,” the Tokyo University professor said in an interview in Tokyo this week. The decline “will be very severe, not only in terms of duration but also depth,” he said.

The downturn probably began in the fourth quarter of 2007 and may exceed the 36-month slump that ended in 1983 because demand from abroad will remain weak, Yoshikawa said. Japan has yet to shake off its dependence on exports, which collapsed last quarter as the global financial crisis intensified.

The world’s second-largest economy will probably shrink about 1 percent in each of the two years ending March 2010, said Yoshikawa, 57, who is also a member of Prime Minister Taro Aso’s economic advisory panel. He said the ensuing recovery will be driven by sales to Asia rather than the U.S. and Europe.

While economies such as China and India will probably slow in coming months, they’re still growing at a “very different level” than in the developed world, Yoshikawa said. China probably expanded 6.8 percent last quarter, economists estimate a report will show on Jan. 22. The U.S., Europe and Japan all contracted in the third quarter of 2008.

‘Too Optimistic’

It’s “too optimistic” to expect a U.S. recovery this year because financial problems linger in the world’s biggest economy, he said. Asian economies have a relatively healthy banking sector and Japan can benefit from its close proximity to the region, said Yoshikawa, who earned a Ph.D. at Yale University under James Tobin, a Nobel Prize-winning economist.

Japan’s average recession lasts 16 months. While the economy shrank in two consecutive quarters since last April -- one definition of a recession -- the committee headed by Yoshikawa has yet to formally mark the beginning of the slump.

The economy is “worsening rapidly,” the government said yesterday after exports and factory output dropped the most on record in November. Overseas shipments accounted for 61 percent of growth in the most recent expansion, the longest in more than 60 years, according to Dai-Ichi Life Research Institute in Tokyo.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net