Japan economy shrank more than initial report

TOKYO – Japan's economy contracted in the April-June quarter at an annual rate of 2.1 percent, worse than the initial estimate, the government said Friday, underlining the damage from the March earthquake disaster.

The Cabinet Office numbers give a more dismal view than the earlier report that had said Japan's gross domestic product, or the measure of a nation's goods and services, contracted at an annual rate of 1.3 percent.

The world's third-largest economy has struggled ever since the March 11 tsunami and earthquake, which left 20,000 people missing or dead, disrupted supply chains among the small-business suppliers in the northeast and forced companies to cut back on power usage because of a nuclear power plant that went into meltdown.

The government said capital expenditure during the three months through June contracted 0.9 percent annual rate. The preliminary report had said it had risen 0.2 percent.

Satoshi Osanai, economist at Daiwa Institute of Research in Tokyo, said the revisions were within expectations, and the consensus view among analysts is that the economy will bounce back in months ahead.

"These negative results reflect the one-time disaster, and so we still think conditions are turning better in a recovery," he said. "This is not going to be like Lehman shock when things kept getting worse."

Government stimulus spending, designed to help along recovery efforts in northeastern Japan, is likely to combine with growth in the private sector, including consumer spending, to show expansion in the next quarter economic data, Osanai said.

The disaster hit at a time when Japan's economy had been stagnating for more than a decade, its public debt ballooning, and the nation had been struggling to find a turnaround.

Exports, corporate investment and consumer spending have all been falling in recent months.

Even as companies restore production, a surging yen, which has recently tested record highs against the dollar, is a major problem for Japan's exporters. It reduces the value of their foreign earnings and makes Japanese goods more expensive in overseas markets.

Japan lost its place as the world's No. 2 economy to China last year. It has faced a slew of problems including years of deflation and a rapidly aging and shrinking population.

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