Japan has plunged into recession more sharply and more violently than at any time since the Second World War, leaving even the most bearish analysts awed by the speed of decline and the carnage unleashed by the global financial crisis.

A full-frontal assault of economic data revealed an economy “on its knees”, said Nomura economist Colin Asher, and one that many have many more nasty surprises still in store for the markets. The fourth quarter of the current year is expected by many to be one of the worst in history for global economic activity: early signs that Japan might somehow wriggle out of the impending bloodbath unscathed have now entirely evaporated.

Even the Japanese government, which strongly resisted admitting that the country was in recession until two weeks ago, was yesterday forced to acknowledge how bleak the situation has become. Where previously it foresaw a “moderate” decline in industrial production, it now predicts an outright “downward trend”. The phrase was officially applied to a variety of other data series, including employment and discretionary spending.

Senior economists at Nikko Citigroup described Japan as being in the “midst of a freefall” in economic activity, and warned investors that the “astonishingly bad” data released yesterday would likely deteriorate as consumers around the world buckled under the burden of mass layoffs, factory closures and a retrenchment of the financial services sector.

Japanese exports, savaged by the roaring strength of the yen against the euro and US dollar, have cratered. And in keeping with their long history of financial conservatism, both Japan’s corporations and its households have abruptly reined-in their spending. In a hasty readjustment to their forecasts yesterday afternoon, many economists now believe that Japanese industry is due for a rapidly intensifying contraction.

Accordingly, and in a day of repeated economic shocks, by far the worst blow was Japan’s industrial production numbers – a data series viewed by investors as the very heartbeat of the world’s second largest economy. October saw output drop 3.1 per cent from the previous month “bad enough in and of itself,” said Mr Asher, but relatively modest compared with the declines expected to follow in November and December. The government’s own projection of a 6.4 per cent month-on-month collapse of industrial production in November, would easily be the worst ever recorded.

Unlike previous recessions, the industrial production figures were dragged down by a trio of simultaneous crises. The automotive sector is suffering because people around the world have stopped buying cars, and electronics sales – both to consumers and corporations – have tanked everywhere. Especially hard hit has been sales of industrial machinery – the equipment that used to be bought in huge volumes by Chinese, Taiwanese and Korean manufacturers during China’s most rapid phase of growth.

Richard Jerram, of Macquarie, described the industrial production numbers as “incredibly bad”, and warned that the pace of collapse will be far worse than during Japan’s previous recessions during the so-called “lost decade” in the 1990s. Even in 2001, when January production slumped 4.2 per cent, it was preceded and followed by months of positive activities. November’s numbers, on the other hand, will be sandwiched by two months of dire decline.

Akira Maekawa, an economist at UBS in Tokyo highlighted household spending numbers as another sign of decline. October spending was down 3.8 per cent year-on-year, and performed much worse than consensus forecasts had predicted. The index has now been negative for eight straight months.

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