Japan’s economy, the world’s second largest, entered its first recession since 2001 last quarter and the Government and economists said conditions may get even worse, according to the Cabinet Office.

Gross domestic product (GDP) shrank an annualised -0.4% in the three months which ended on 30 th September, according to the Cabinet Office. Economists predicted the economy would grow +0.1% after contracting a revised -3.7% in the previous period.

Japan has the lowest interest rates among the 20 biggest economies and public debt that exceeds 180% of GDP, limiting the Government’s ability to stimulate growth. The Bank of Japan has little scope to contribute further after lowering the benchmark rate to 0.3% last month, and a 5 trillion yen ($52 billion) stimulus plan announced by Prime Minister Taro Aso last month risks worsening the public debt. Kaoru Yosano, economic and fiscal policy minister, confirmed that the economy had entered a recession that may deepen.