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You know what’s bad? Frozen sushi. But you know what’s even worse? Japan’s Q3 2012 GDP report.

Yesterday, Japan’s preliminary Q3 GDP came in slightly worse than expected as it showed a 0.9% contraction for the period. The forecast was only for a 0.8% decline. In addition, the reading for Q2 was revised down to 0.2% from 0.3%.

Japan’s gross domestic product (GDP) figure translated into an annualized decline of 3.5%, slightly inferior to the median economist forecast of a 3.4% fall. The Q3 contraction was the first for this year, government data reported, and the most dramatic one since the country was hit by the earthquake-tsunami crisis back in March 2011.

Looking at the details of the GDP report, the blow to private consumption was the primary reason behind the disappointing figure. The drop in corporate capital spending also hurt Japan’s GDP. It fell 3.2% due to the diminished activity of large carmakers and other manufacturing companies.

More bad news was found in the trade sector. Exports were reported to have fallen 5.0%, the sharpest decline in more than a year. Japanese shipments to major economists like the U.S., Europe, and Asia all slowed down.

If there were any positive takeaways from the report, it would be the improvement in housing investment and government spending. Housing investment grew 0.9% for the second straight quarter, reflecting healthy home-building. Meanwhile, government spending jumped 4.0% for the third straight quarter due to the work required to rebuild from the March 2011 earthquake and tsunami.

Economists couldn’t help but worry that Japan is just one quarterly contraction away from slipping into a technical recession. Some financial analysts have even pointed out that, while the Q3 GDP was the first negative reading for the year, it seems that it won’t be the last.

One reason for this downbeat outlook is the fact that Japan’s export and production sectors haven’t fully recovered from the natural disasters back in 2011. It doesn’t help that Japan had a recent territorial spat with China, which is their largest trading partner. Note that roughly 20% of Japan’s export products are shipped to China, based on data from the Japan External Trade Organization.

The BOJ already saw this economic slump coming as they decided to boost its bond purchases program from 80 trillion JPY to 91 trillion JPY just a few days ago. However, the recent GDP release could pressure BOJ policymakers to step up their efforts when it comes to keeping the Japanese economy on its feet.

On top of that, the disappointing growth figure could also delay the clamored general election in Japan. In fact, Japanese Prime Minister Yoshihiko Noda has been ignoring calls for a general election as disappointing economic figures are causing his party to lose popularity points.

With the prospect of weaker Japanese economic growth, further easing from the BOJ, and political tension in Japan, it’s hard to imagine that traders will be very eager to park their money in the yen in the near term. Do you think that’ll be the case? Let us know by voting through our poll below!