Japanese Economy Formally in Recession as Growth Shrinks in the Second Quarter

The final revision of Japan's second-quarter Gross Domestic Product confirmed that the world's second-largest economy shrank -0.7% in the second quarter. The economy lost -0.6% in the first three months of the year, meaning Japan is now officially in recession (by definition, a recession refers to two consecutive quarters of negative economic growth). The Bank of Japan will likely stick to a loose monetary policy, keeping borrowing costs unchanged at 0.50% until late 2009. Policy makers hope this will encourage spending as well as help export demand by keeping the Yen relatively cheap against higher-yielding currencies. The Japanese Yen remained virtually unaffected by the announcement as trends in risk sentiment continued to trump fundamental data in driving forex price action.

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