Japan Economy Worse Than Reported - Wall Street Journal

TOKYO—The Japanese economy contracted more severely than previously reported in the April-June period, data released Friday showed, with firms cutting back on capital spending at a faster pace in the wake of the March 11 earthquake and tsunami.

The revised gross domestic product shrank at a price-adjusted annual pace of 2.1% in April-June from the previous quarter, the Cabinet Office said, compared with a preliminary 1.3% contraction announced three weeks ago.

The figure matched expectations from a survey of economists by Dow Jones Newswires and the Nikkei.

Despite the downward revision, analysts remain optimistic about growth in Japan over the coming quarters as post-quake reconstruction is expected to provide a shot in the arm for the nation's economy. A government survey of 40 economists released Thursday showed that, on average, annualized GDP is expected to expand by 4.95% in the July-September period, followed by 2.63% growth in the October-December quarter.

Some analysts also see brighter economic prospects for next year. Mitsumaru Kumagai, chief economist at Daiwa Institute of Research, said the government's expected third extra budget, which is currently being compiled, should have a positive long-term impact on economic growth.

But the strong yen and weakening overseas demand are likely to remain as downside risks, they say.

"There has been an expectation for a strong recovery in the second half of the year, but given concerns for a global economic slowdown and a strong yen, concerns are rising that the recovery may not be as strong as previously expected," said Toshihiro Nagahama, senior economist at Dai-ichi Life Research Institute.

For the GDP data released Friday, a major reason for the downward revision was a reduction in capital spending, which recorded a 0.9% decline in the latest release, from a 0.2% gain in the preliminary data.

Economists and officials say the earthquake and tsunami have weighed on corporate sentiment. "The downward revision is mostly due to weaker domestic demand, especially capital investment and inventories," said a Cabinet Office official briefing reporters.

Real GDP contracted by 0.5% from the previous quarter, the revised figures showed, weaker than the 0.3% fall in the preliminary data.

—Kosaku Narioka contributed to this article.

Write to Takashi Mochizuki at takashi.mochizuki@dowjones.com

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