Japan started preparing a package of pump-priming measures today as fresh data revealed the world's secong biggest economy shrank 0.8% in the three months to June from the previous quarter.
'The gross domestic product data are extremely severe numbers. We must press ahead with the preparation of a supplementary budget,' Prime Minister Junichiro Koizumi told reporters after the figures were released.
On an annualised basis, Japan's gross domestic product fell 3.2% in the June quarter.
Although Japan appeared to be sliding towards recession, Koizumi pledged to push ahead with a tough structural reform program expected to act as a further brake on the economy in the short term.
However, he said the negative short term effects of the reforms would be eased by a limited supplementary budget.
He said he wanted to 'show people that smooth progress in structural reforms will contribute to an economic revival'.
A 2.8% fall in corporate spending in the June quarter from the previous three months was a key factor in causing the economy to shrink, State Minister for Economic and Fiscal Policy Heizo Takenaka told a news conference.
It was the steepest decline in corporate spending since the December quarter in 1998. He hinted it would be very hard for Japan to achieve the official growth target for the year to March of 1.7%.
