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Shoichi Nakagawa faces questions about wobbly performance at G-7 meet as government announces economy shrank at 12.7% rate in fourth quarter.

It wasn't the biggest economic contraction in more than three decades that piqued the attention of Japan's media on Monday. It was the apparent drunken attempt of the country's finance minister, Shoichi Nakagawa, to respond to questions at a press conference in Rome following the end of a Group of Seven meeting that fueled chatter in Tokyo.

Eyes drooping and red-faced, Nakagawa slurred his replies and fumbled his answers to reporters in Italy's capital on Saturday. Greeting him back at work in Tokyo on Monday was unequivocal evidence that Japan's economy is the worse for wear. In the three months to the end of the year, the world's second-biggest economy shrank by an annualized rate of 12.7% as exports collapsed. (See "Japan Hits The Skids" and "Asia's Economic Dragons Wheezing")

In a sign of how consumers have shunned made-in-Japan products, Toyota Motor (nyse: TM - news - people ), the nation's leading manufacturer, expects to lose close to $5 billion this year compared with a profit of almost $7 billion a year earlier. (See "Moody's Puts The Boot Into Toyota") Toyota and the rest of the Japanese economy may be in for an even bumpier ride going forward.

"Everything indicates that Q1 will be worse. It's a very severe economic adjustment," said Glenn Maguire, chief Asia-Pacific economist for Societe Generale in Hong Kong. Making matters worse for Japan is the yen. As investors take refuge in the Japanese currency, its value against the dollar and other currencies has gained some 40% in recent months. That means "further retrenchment in capacity and labor," added Maguire, who predicts that average real GDP contraction in 2009 will be between 5% and 8%.

In Rome, Nakagawa, along with other G-7 finance ministers and central bank heads, agreed that the state of the world economy was dire, describing it in a statement as "severe." The group also committed itself to "act together using the full range of policy tools to support growth and employment and strengthen the financial sector.

Back in Tokyo, Nakagawa reportedly blamed his condition on having imbibed too much cough medicine. Speaking on television, one former prime minister, Yoshiro Hori, admonished Nakagawa for his Rome performance.

Nakagawa's boss, Prime Minister Taro Aso, is struggling to deliver on the G-7 commitment. Stimulus measures have been bogged down by political wrangling both within the ruling Liberal Democratic Party and with the opposition Democratic Party Of Japan, which controls the upper chamber of Japan's parliament. With an approval rating dipping below 10% and a national election looming, the beleaguered prime minister, who promised that Japan would be the first industrialized nation to emerge from recession, may have to leave it to his successor to fix the economy.

The reality, reckons Societe Generale's Maguire, is that Japan will be "first in and last out," as a quarterly recovery is unlikely until the second half of 2010. With little hope to sustain it, reaching for the bottle may be the only way for some Japanese to dull the economic pain.

WASHINGTON (CNN) -- Call it a meeting of the bipartisan minds.

President-elect Barack Obama will meet with former GOP presidential candidate John McCain Monday in Chicago, Illinois.

The meeting will take place at the Obama transition headquarters.

"It's well known that they share an important belief that Americans want and deserve a more effective and efficient government, and will discuss ways to work together to make that a reality," Obama transition spokesman Nick Shapiro said in a statement Sunday.

Obama and McCain will be joined in the meeting by Sen. Lindsey Graham, R-South Carolina, and Obama's new chief of staff, Rahm Emanuel.

Meanwhile, the man who steered Obama's Senate office will now move over to the White House with the incoming president.

The Obama Transition Office announced Sunday that Peter Rouse, currently Obama's chief of staff in his Senate office, will serve as a senior adviser to the President.

Before joining Obama in December 2004, Rouse was chief of staff for 19 years to former Senate Democratic Leader Tom Daschle of South Dakota. Prior to that he was chief of staff to then-Rep. Dick Durbin of Illinois.

The Obama transition team also announced that Mona Sutphen will serve as a deputy chief of staff.

Sutphen is a member of the transition team staff and has been managing director of Stonebridge International LLC, an international strategic consulting firm based in Washington.

From 1991 to 2000 she was a U.S. foreign service officer, and among other assignments she served in the White House at the National Security Council from 1998 to 2000, under President Bill Clinton.

Jim Messina was also named a deputy chief of staff. Messina is currently the director of personnel for the president-elect's transition team. He served as a national chief of staff for Obama's presidential campaign. Watch more on the Obama transition picks »

Prior to that, Messina served as a chief of staff for Senators Max Baucus (D-Montana) and Byron Dorgan (D-North Dakota) and for Rep. Carolyn McCarthy (D-New York).

President-elect Obama, in a statement released by the transition team, said, "These individuals are important additions to a team with the experience and ability to help our nation overcome pressing challenges at home and around the world."

Also, a longtime friend of the Obamas was officially named Saturday as a senior adviser to the incoming president.

Obama, in a statement released Saturday morning by his transition staff, announced that Valerie Jarrett will serve as senior adviser and assistant to the president for intergovernmental relations and public liaison. CNN Contributor Roland Martin reported the offer to Jarrett on Friday evening.

Jarrett is currently co-chair of Obama's transition team and was senior adviser for his presidential campaign. She became the president and CEO of The Habitat Company in 2007 and was also the company's vice president. The Habitat Company develops and manages residential apartments and condominiums.

Before joining The Habitat Company, Jarrett served for eight years in government for the city of Chicago, first as deputy corporation counsel for finance and development, then as deputy chief of staff for Mayor Richard M. Daley, and finally as commissioner of the Department of Planning and Development.

Also Saturday, a Democratic source told CNN that prominent Washington lawyer Greg Craig will be named White House counsel for the Obama administration. The source added that it is unclear when the appointment will be made public.

Craig first gained prominence representing President Clinton in his Senate impeachment trial, but he endorsed Obama over Sen. Hillary Clinton in the Democratic primaries and later played a key role in Obama's vice-presidential vetting process.

CNN reported Friday that three officials close to the presidential transition said Craig was under strong consideration to be named as the incoming president's top lawyer.

One of those officials said Craig was "highly regarded" and trusted for his discretion by Obama.

The transition team also made official Saturday the hiring of Ron Klain as chief of staff to the vice president.

Klain was also chief of staff to Vice President Al Gore, but he's no stranger to Vice President-elect Joe Biden, having served as chief counsel to the Senate Judiciary Committee when Biden was the committee chairman.

Klain also served as general counsel of Gore's 2000 Florida recount effort and was portrayed by actor Kevin Spacey in an HBO movie about the event.

This year, Klain helped with debate preparation for both Obama and Biden.

"Ron Klain has been a trusted adviser of mine for over 20 years," a statement from Biden said Saturday. "He brings extraordinary judgment, a deep understanding of the important policy issues facing our nation, a wide range of experience in the executive, legislative and judicial branches of government, as well as a unique understanding of how the vice president's office works."

The transition team also announced Saturday that Phil Schiliro will serve as assistant to the president for legislative affairs. Schiliro is director of congressional relations for the Obama transition team. Before that, he was a senior adviser to Obama's presidential campaign.

Schiliro has worked in Congress for more than 25 years, in positions including chief of staff to Rep. Henry Waxman, D-California, policy director for then-Senate Democratic Leader Tom Daschle of South Dakota, and staff director for the Senate Democratic Leadership Committee

(CNN) -- President-elect Barack Obama met with his former rival Sen. Hillary Clinton to see if she would be interested in a role in his administration, two sources told CNN Friday.

Obama also will meet with the man he defeated in the general election, Republican Sen. John McCain, on Monday, the Obama transition team announced Friday.

On Friday, Clinton responded to the latest rumors at a transit policy speech in Albany, New York.

"I'm very happy there is so much press attention and interest in transit," Clinton said to laughs.

"In the off chance that you're not here for this important issue and are here for some other reason, let me just say that I'm not going to speculate or address anything about the president-elect's incoming administration."

She added: "I'm going to respect his process and any inquiries should be directed to his transition team."

Clinton went to the meeting Thursday with Obama because "she knew Obama wanted to talk about whether she would have a role in the administration," one of the sources knowledgeable about the meeting said.

Obama and Clinton met in Chicago, Illinois, at the request of the president-elect, the sources told CNN.

The two sources said Clinton was surprised to hear rumors she was being considered for secretary of state position. The sources could not confirm that the she and Obama discussed the nation's top diplomatic position or that it was offered.

This is not the first time Clinton has been rumored to be under consideration for a position on Obama's team.

The New York senator was said to be on Obama's short list of possible vice presidential picks this summer, but Obama ended up picking Sen. Joe Biden of Delaware.

That source said Clinton thought the speculation that she would be tapped to be Obama's secretary of state was "silly" because of the earlier buzz about her becoming Obama's running mate. iReport.com: Who should Obama pick?

A spokesman for the former presidential candidate and first lady, Philippe Reines, said "any speculation about Cabinet or other administration appointments is really for President-elect Obama's transition team to address."

On Monday night, while walking into an awards ceremony in New York, Clinton was asked if she would consider taking a post in the Obama administration.

"I am happy being a senator from New York. I love this state and this city," she said. "I am looking at the long list of things I have to catch up on and do.

"But I want to be a good partner and I want to do everything I can to make sure his agenda is going to be successful." Watch whether Clinton would join Obama's team »

Other names that have been mentioned for the top diplomatic role include Sen. John Kerry of Massachusetts, the Democrats presidential nominee in 2004, and New Mexico Gov. Bill Richardson, a former U.S. ambassador to the U.N. and energy secretary in the Clinton administration.

Latino groups are championing Richardson for the top State Department slot. If picked, Richardson would be the nation's first Latino secretary of state.

A source close to transition team tells CNN that Obama is also trying to build a diverse Cabinet that includes women and minorities and that works as a team.

Obama's transition team is expected to announce some high-level staff positions on Friday.

Obama campaign spokesman Robert Gibbs is widely expected to be named White House press secretary, and Obama chief strategist David Axelrod is expected to be picked as a White House senior adviser.