Japan economy shrinks more than expected in Q4, weak

Sun Feb 12, 2012 7:49pm EST
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By Tetsushi Kajimoto and Kaori Kaneko

TOKYO (Reuters) - Japan's economy shrank a bigger-than-expected 0.6 percent in October-December, hurt by slowing global growth, Thai floods and a strong yen, casting doubt about expectations that growth will resume this quarter as Europe's debt crisis clouds the outlook.

Domestic demand also weakened in a worrying sign that the economic boost from rebuilding the country's earthquake-devastated northeast coast is slow to materialize.

Japan's fourth contraction in five quarters pushed economic output for the whole of 2011 down 0.9 percent, marking the first calendar year contraction since the global financial crisis in 2009.

The weak reading could add to mounting political pressures on the Bank of Japan to ease policy further to shore up the world's third-largest economy with policymakers grappling with persistent deflation and a strong yen.

The gross domestic product data came hours before the central bank kicks off its two-day policy meeting at which it may decide it needs to act by weighing further easing or setting a more specific inflation goal.

The contraction came just as the economy was recuperating from a slump caused by last year's earthquake and tsunami that devastated the northeast coastal areas in March and triggered the world's worst nuclear disaster since Chernobyl in 1986.

It compared with economists' median forecast for a drop of 0.3 percent and followed a revised 1.7 percent expansion registered in July-September, which was the first rise in GDP in four quarters.

On an annualized basis, the economy shrank 2.3 percent, against a 1.4 percent contraction expected, data from the Cabinet Office showed. That also compares with an annualized expansion of 2.8 percent in the United States in the same quarter.   Continued...