FXStreet (Mumbai) - Japan entered into technical recession with the third quarter GDP growth slipping to an annualized 0.8 per cent, more than economists’ expectation of a 0.2 per cent decline. The economy had registered a 0.7 per cent drop in the previous quarter as well. Japan has entered into recession for the second time since PM Abe took over three years ago in December 2012. Fall in business investment has been singled out as the most important factor that prompted growth to slip. Business investment fell in Q3 causing Japan to enter into recession The economic indicators reports released recently have not looked least bit promising. Capital expenditure also fell 1.3 per cent in the July-September period, higher than the 0.4 per cent forecast. The Cabinet Office said that Inventories dipped 0.5 per cent in the third quarter as more companies reduced stocks. Business investment fell 1.3 per cent in the third quarter. The central bank governor Kuroda’s core price gauge fell. Shrinking sales to China has hurt Japan's annual export growth. Import, on the other hand is being affected by low global commodity price as well as low domestic demand. Capex has been weakening for the past couple of months due to the dip in trade volumes. Household spending fell 0.4 per cent in September from a year earlier. Unemployment remained at 3.4 per cent and incomes slipped 1.5 per cent. Manufacturers’ confidence fell in November for a third straight month to a 2-1/2 years low. Retail sales slipped causing the service sector index fell to 22 in November from 27 in October. Vehicle production also declined. The industrial output however advanced 1.1 per cent in September from the previous month. The data could not offset the impact of the other contracting indicators. Contraction of the economy in both the second and third quarter has rendered a blow to Abenomics which relied on aggressive monetary easing to restore growth in a fast-aging country. The BoJ Governor Haruhiko Kuroda had in 2013 announced a $1.4 trillion quantitative easing program to fight deflationary pressure by stimulating growth. Growth might pick up in coming quarters as Abe plans to inject stimulus package Analysts expect the economy to start picking up in the coming months given that Abe is planning to inject fresh stimulus package to boost growth. Abe has called on Japanese companies to increase their capital spending. He advocated for reflationary policies to boost corporate profits. The Economy Minister Akira Amari has been asked to chart measures to help achieve Abe’s goal of expanding Japan’s nominal GDP by 20 per cent to 600 trillion yen over five years. The government can be expected to formalize another round of fiscal stimulus package after this GDP report. Amari had earlier nodded when asked if he saw "no need" to provide an extra budget to stimulate demand right away. However post the release of the data he said that the government would take “flexible approach to fiscal and economic management”. He also stated that an extra budget will likely focus on addressing Japan’s demographic issues and also help to alleviate the effects of the Trans Pacific Partnership trade pact. Amari believes GDP is likely to expand in the current quarter. Will the technical recession prompt the BOJ to ease policy? The Q3 GDP report put pressure on Abe and the Kuroda to boost stimulus. Bank of Japan officials however did not see the GDP report as likely to change their outlook for an improving trend in inflation. BOJ Governor Haruhiko Kuroda has in the past downplayed the need for fresh policy stimulus despite declining growth. He is more confident of a consumer driven growth, particularly after private consumption showed signs of growth (0.3 per cent). Izumi Devalier, Japan Economist at HSBC, holds that further stimulus is not in the pipeline for now and the GDP report will not change the BOJ inclination to hold its massive stimulus programme. Unless the economy is faced with a deflationary shock BOJ will choose to hold rates. The BOJ is scheduled to hold a policy meeting tomorrow with attention focused on whether it will expand its monetary easing. As of now it seems there is little possibility that BOJ will slash rates at tomorrow’s meeting. BOJ had held rates when it met on 30th October despite little progress made by the BOJ in the direction of spurring inflation. For more information, read our latest forex news.