Japan may have suffered an explosion of layoffs and factory closures, a collapse in manufacturing and the fastest plunge into recession since the Second World War, but its people are refusing to drown their sorrows in beer.

And even that, economists say, is a terrible sign. It is, they say, an indication that Japan may be heading inexorably towards another punishing attack of deflation in 2009. Corporate Japan may even be preparing for the huge job losses it never properly undertook in the “lost decade” of the 1990s.

“The argument that Japan faces only a relatively minor economic adjustment [compared with Europe or the United States] no longer holds,” Takahide Kiuchi, chief economist at Nomura, said.

Japanese beer shipments to stores and restaurants — a closely scrutinised gauge of sentiment in the real economy — plunged with alarming speed in November and seem well on course to make this year the worst for beer sales since records began in 1992.

To make matters worse, those Japanese that did turn to the bottle bought happoshu — a cheap “beer-flavoured alcohol” seen as a symbol of Japan's persistent tendency to thrift.

Japan managed to slay deflation only in 2006 after more than a decade that left psychological scars across society. Kyohei Morita, an economist at Barclays Capital, said that as well as Tuesday's quarterly slide in GDP, prices were likely to fall and there was a possibility of a slide into deflation from October to December 2009.

The deflationary picture was illustrated by the mobile phone industry, which reported a 58 per cent year-on-year drop in shipments in October — the fastest pace of decline ever.

The corporate goods price index grew only 2.8 per cent in November — a near-halving of October's pace. The huge rise in the yen, with lower energy and raw material input prices, means that Japan Inc will effectively be forced to cut prices as the domestic and global economies hit the brakes.

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