The world's second largest economy has not slowed to an extent comparable to the US or other major economies. However, Japan's sustained economic growth depends on how its major trading partners fare in the days to come.

After a decade plus struggle to overcome deflation and recession, the Japanese economy is again facing concerns. Now, its export-led recovery is vulnerable to the global economic slowdown. The economic outlook is dim with weakening exports, disappointing industrial output and lower corporate profits. As predicted by OECD and IMF, the economies of many nations would slow for the second consecutive year in 2008, since the global economy is shadowed with a cloud of fragile circumstances, caused by a range of factors like the escalating uncertainty over the future course of the US and European economies as a result of subprime crisis and soaring crude oil prices. This is what exactly happening for the world's second largest economy.

Japan's post-war economy has crossed several ups and downs to become a powerful economy. Talking of the current situation, real GDP growth accelerated to 0.8% quarter on quarter in Q1 of 2008, from 0.6% in the previous quarter. Japan's economy grew at an annual 4% rate in Q1. The external sector was undoubtedly the leading driver of economic development in the first quarter. Exports of goods and services rose by 4.5% compared to the previous quarter and by 19.5% in annualized terms, the fastest pace of growth in four years. However, the overall outlook for the Japanese economy remains gloomy. Business sentiment is low against sluggish public and private investment and high inflation—the main forces that are dragging the economy down. More recently, the US-led slowdown has started affecting the export sector of Japan severely. Seasonally adjusted unemployment hit a seven-month high. The number of new job offers has been falling.

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