Japan economy shrinks in fourth quarter

Europe Sun Monday 13th February, 2012

TOKYO- Japan economy has shrank 2.3 per cent more than what was feared in the last three months of 2011 as a strong yen and severe Thailand floods hurt the manufacturing of the country still recovering from the massive earthquake and tsunami last year.

The year-on-year decline in gross domestic product is much worse than 1.4 per cent analysts had predicted.

Compared with the previous three months, the economy has shrank by 0.6 percent, according to figures released Monday.

The GDP decline comes as the government is struggling to restore the world's third-biggest economy following the March 2011 earthquake and tsunami in the face of continued downward pressure from the strong yen, according to Japan Times.

The newspaper said the government has stressed that the contraction was temporary and the economy's upward momentum remains.

Analysts blamed Thai floods, which severely damaged operations of Japanese manufacturers by disrupting supply chains, for the contraction.

The GDP contraction was "largely expected and is not surprising" in the wake of weakening exports amid the Thai floods, Masaaki Kanno, chief economist at JPMorgan Securities Japan Co, told the Japan Times.

The Japanese currency has risen more than seven per cent against the US dollar since April last year.

Japan's manufacturing giants like Sony Corp and Honda Motor were hit badly by the drop in export demand and production and supply disruption due to floods in Thailand, a major manufacturing hub for Japanese companies.

The data released Monday also show that there has been a drop in government spending during the October-December quarter.