Tokyo, 18 Feb. It’s one thing for a country’s GDP to drop – which is common enough these days – but to have the finance minister drunk at the same time, when the country needs him most, is another story.

Was it the slumping economy that led Shoichi Nakagawa, the Finance Minister of Japan, to drink or did his drinking contribute to the economy’s decline? Or maybe the Italian grappa was just too much to resist at the G7 meeting in Rome where he was caught fumbling on camera, half-asleep.

Joking aside, it’s still up for debate whether or not he was indeed intoxicated. He claimed he took too much cold medicine and didn’t get enough sleep the night before. Nevertheless, he resigned amid these embarrassing allegations. Nakagawa was replaced by Kaoru Yosano, the former Economics Minister.

As he stepped down, he made a public apology, but never did admit to being drunk. During the incident, he looked sleepy and disoriented, and even answered a question about interest rates that was directed at the governor of the Bank of Japan.

This was as the GDP of Japan shrank as exports to the US, Europe, Asia, and the rest of the world dropped off the edge of a cliff. This is the largest contraction Japan has experienced since the global spike in oil prices started the economic troubles of 1974.

The fourth-quarter report has Japan's economy, the second-largest in the world, slumping far worse than any in the EU or US. As bad as a 3.3 per cent GDP drop sounds, the annualized figure of 12.7 per cent is positively terrifying. Japan is the worst performing economy in the G7, and this the worst contraction since the devastation Japan suffered in World Wor II.

Despite this, Japan's prime minister, Taro Aso, remarked that, "our wounds are shallow" compared with the economic troubles in other economies. Little surprise then that his approval rating is running at under 10 per cent.

This heavily export-dependent economy is suffering with limited buying from its largest trade partners like the US and the EU. Limited credit and lending in the US has put the brakes on imports to the US, especially from Japan with its expensive yen. So not only are there no US dollars to buy goods, what is for sale is expensive.

Just weeks ago, some of Japan’s largest firms announced unprecedented losses and job cuts. Nissan laid out plans to slash 20,000 workers, Toyota reported its first operating loss in seven decades, and NEC, Sony, Toshiba, and others also made job cuts.

Exacerbating all of this is inflation, which means Japanese workers’ real wages have declined. The result has been grim – a cut in spending for three straight quarters. Even that didn’t happen in the “lost decade” of the 1990s when Japan’s economy fell to its knees after stock and property bubbles burst.

If Shoichi Nakagawa’s conduct is a barometer to judge the Japanese economy by, it seems that it has a long hangover to recover from.

Hiroko Mirafiori, EconomyWatch.com