FXStreet (Mumbai) - Official data today showed Japan's economy shrank an annualized 0.8 per cent in the July-September period; considerably lower than the 0.2 per cent expected contraction. The economy had suffered 0.7 per cent contraction in the privous quarter as well. A drop in capital spending and weakening external demand across Asia is believed to have pushed Japan into a technical recession for the second time since PM Abe came into power three years back. Capital expenditure also fell 1.3 per cent in the July-September period, higher than the 0.4 per cent forecast. The two consecutive quarters of economic contraction has rendered a blow to Abenomics which relied on aggressive monetary easing to pull the country out of chronic stagnation. In 2013, BoJ Governor Haruhiko Kuroda announced a $1.4 trillion quantitative easing program to end deflation and put the country back on the growth track. Despite the stimulus measure, deflation and growth fears have continued to plague Japan. Economics Minister Akira Amari noted there are not enough suitable workers to build growth. The BoJ estimated the GDP to grow at 1.2 per cent this fiscal year, down from an earlier forecast of 1.7 per cent. Figures show Japan enters into recession again Shrinking sales to China is hurting the volume of shipments resulting in slowing of Japan's annual export growth; while the imports are being affected by low global commodity price and low domestic demand. Japan's trade deficit likely declined to 80 trillion yen in October, given that falling imports outpaced the drop in exports. Capex has been weakening for the past couple of months on the back of slower trade Household spending fell 0.4 per cent in September from a year earlier. Incomes also slipped 1.5 per cent. Unemployment remained at 3.4 per cent, and there were 1.24 jobs available for each job seeker. A Reuters poll on 11th November showed declining confidence among Japanese manufacturers. Confidence among manufacturers fell in November for a third straight month to a 2-1/2 years low. The service sector index fell to 22 in November from 27 in October. The Reuters Tankan sentiment index for manufacturers fell to 3 in November from 7 in October. BOJ required to expand stimulus The U.S. Treasury Secretary Jack Lew had earlier stated that Japan should provide more fiscal support to promote growth fuelled by rise in domestic demand. The data released today shows Japan has entered recession for the fourth time since the global financial crisis, and adds pressure on the Japanese government as well as the central bank to further expand the stimulus package. Structural reform to break through supply-side constraints including labor shortages is the need of the hour in the fast aging Japanese society. The BOJ has chosen an aggressive bond-buying program aimed at ending deflation and boosting growth. The Q3 GDP data released today provides an impetus to the BOJ to opt for further easing. All eyes will be on BOJ’s Thursday policy meeting where it will concentrate on whether it will expand its monetary easing. BOJ will likely maintain its massive stimulus program this Thursday BOJ Governor Haruhiko Kuroda have repeatedly downplayed the need for fresh policy stimulus despite the continuous deflationary pressure and declining growth. He is confident of a consumer driven recovery. When asked if he saw "no need" to provide an extra budget to stimulate demand right away, he nodded. According to Izumi Devalier, Japan Economist at HSBC, the BOJ will not move. She is of the opinion that further stimulus is not in the pipeline for now and “the GDP print doesn't change the picture,". She believes unless the economy is faced with a deflationary shock in the form of a very strong currency or a significant decline in equities, BOJ will opt to hold rates. Analysts believe that the central bank will likely maintain its massive stimulus program at Thursday's policy meeting. For more information, read our latest forex news.