Sense of discomfort grows for Japan Inc Talk to executives at Asics, and you don't get the sense that Japan Inc is hurting. The country's top maker of running shoes, heavily exposed to developed-world demand, is doing just fine, says Katsumi Kato, global head of sales. In Spain, for example, where the "economic climate is the worst in the world, people are still getting out there and running," he says. There is not much obvious discomfort at Yamaha Corp, either. Other than in China - where the outlook has been clouded by the territorial dispute, making customers reluctant to splurge on Japanese brands - demand in most key markets is "looking quite strong," says Mitsuru Umemura, president of the world's largest manufacturer of musical instruments. Such upbeat outlooks are unusual, though. Government data on Monday showed that, four years on from the violent contraction triggered by the Lehman crisis, Japan's manufacturers are leading the world's third-largest economy to the brink of recession once more. The country's output shrank 0.9 per cent between July and September, according to initial government estimates. That was the steepest decline since the tsunami-hit first quarter of 2011, most of it attributable to a 0.8 per cent fall in exports" contribution to GDP. Now, with Japan poised to shrink again in the fourth quarter as manufacturers whittle down inventories amid uncertain demand, attention will turn to the response from policy makers, including Japan's embattled prime minister, Yoshihiko Noda. On Monday he said he would deal with the latest quarterly downturn - the seventh since Lehman - "with a sense of crisis." The words seem appropriate. In August and September, eight of Japan's nine export categories saw year-on-year falls in the value of shipments, according to customs data. Only the tiny subdivision of food saw an improvement, as overseas buyers of fruit, rice and beef started to worry less about the effects of last year's nuclear meltdown in Fukushima. Other export-led economies in Asia also suffered from faltering demand in China and Europe, notes Tomo Kinoshita, chief economist at Nomura, citing sub-par shipments from South Korea, Taiwan and Singapore during the third quarter. But only ageing, deflating Japan lacks a sufficiently solid buffer of domestic demand growth to offset periodic weakness in demand elsewhere, he says. So when the external outlook turns, so does the nation's industrial production, weighing on wages, bonuses and overall confidence. Falling profits among manufacturers of cars and machinery triggered by overseas slowdowns lead directly to "lower corporate investment and lower personal consumption," says Masamichi Adachi, a senior economist at JPMorgan in Tokyo. As the third quarter showed, the results can be dramatic. Business investment sank 3.2 per cent during the period, the sharpest contraction since a 5.5 per cent tumble in April-June 2009, while household demand slipped by 0.5 per cent, the most since the quake. Japan's overall shrinkage of 3.5 per cent, on an annualised basis, puts it among the world's worst-performing major economies during the third quarter, probably beaten only by austerity stricken Greece (-8 per cent, according to Barclays estimates) and Portugal (-5.8 per cent). "Japan Inc is burning," Daiwa Securities chief Takashi Hibino told reporters last week. Prospects for immediate relief seem slim. While Mr Noda could conceivably push for a supplementary budget of up to Y4tn ($50bn) to support endangered industries, say analysts, his clear priority is to gain the consent of opposition parties to pass a bill that would allow the government to issue debt to cover about two-fifths of spending for the current fiscal year. Only once Japan's own "fiscal cliff" has been averted, could attention turn to stimulus. Even then, Mr Noda may discover that his first task after passing the bill is to honour his earlier pledge to dissolve parliament for a general election. A new ruling bloc could end up crafting a new budget from scratch. The Bank of Japan has more leeway. It could loosen monetary policy again as early as next week, especially if the yen makes another lurch higher against the US dollar. But so far, its rounds of easing have failed to stir much demand for credit - or to undermine the yen. In the meantime, the outlook is not so bad for "lean, efficient" sellers of high-quality finished goods such as Yamaha and Asics, says Akira Kajita, director of international economic research at the Japan External Trade Organisation, a government-affiliated body. But for much of the rest of Japan Inc - from suppliers of heavy machinery to flatscreen TVs - the next few months could be deeply uncomfortable.