Alarm at slump in Japan's economy

New figures showing the sharpest contraction in the Japanese economy for 23 years, along with plummeting share prices in Tokyo, Hong Kong and Jakarta, sent a ripple of alarm around the world's stock markets yesterday.

The collapse in the Japanese economy during the second quarter of this year - described as "frightening" and "appalling" by economists - ensured that the crisis in Asia will dominate the meetings of the G7 finance ministers and the International Monetary Fund starting in Hong Kong next week.

Gordon Brown intends to emphasise the need for openness in economic policies at his first IMF meeting. The recent events in Asian financial markets, which have been blamed partly on inadequate information, have made the Chancellor's planned remarks more relevant, according to Treasury officials.

Mr Brown, with other EU finance ministers, will meet many of their Asian counterparts in Bangkok in advance of the G7 and IMF sessions. Officials said this would be an opportunity for a genuine exchange of views on the lessons to be drawn from the handling of the current crisis.

There was scant sign of stability in the region's currencies and stock markets yesterday. Tokyo's Nikkei index lost 423 points to end at 18,282. Hong Kong's Hang Seng index also dived, shedding 497 points to 14,308.

In London the FTSE 100 index ended 50 points lower at 4,854. By mid-morning the Dow Jones index was down 94 points at 7,625, while the dollar jumped to 120.

Yesterday's figures showed that Japan's GDP declined by 2.9 per cent in the second quarter of the year, the biggest fall since a 3.4 per cent drop early in 1974.

Consumer spending dived by 5.7 per cent, and private investment fell by 1.5 per cent. Exports are the only expanding area of the economy.

Koji Omi, the economic planning minister, said the fall in GDP was temporary, reflecting an increase in sales tax in April. "The gradual recovery trend led by domestic demand remains intact," he said.

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