Japan economy contracts for third straight quarter (AP)

TOKYO – Japan's economy contracted for a third straight quarter as consumer spending and factory production continued to suffer in the aftermath of the March earthquake and tsunami.

Real gross domestic product — a measure of the value of all goods and services produced domestically — contracted at an annualized rate of 1.3 percent in the April-June quarter, the Cabinet Office said Monday.

The figures did provide a glimmer of optimism as a much bigger contraction was expected. A Kyodo News agency survey of analysts had forecast the economy to shrink 2.6 percent.

The March 11 earthquake and tsunami killed thousands of people and wiped out large parts of Japan's northern coast. The disasters damaged many factories in the region, causing severe shortages of parts and components for manufacturers across the country, including automakers.

The tsunami also crippled a nuclear power plant and caused a widespread power crunches, especially in the Tokyo region, adding to the headaches faced by businesses and households.

The Cabinet office said GDP fell 0.3 percent quarter on quarter. Consumer spending, which accounts for some 60 percent of the economy, dipped 0.1 percent. Capital investment by companies was up just 0.2 percent from the previous quarter.

The figures showed that the nation's economy slumped in wide range of areas and still needs close attention, Finance Minister Yoshihiko Noda said.

"We must steer the economy very carefully because we still have downside risks including the problem of the rising yen," Noda told a news conference.

Japan's economy was struggling even before the disaster. The country 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, a rapidly aging and shrinking population and ballooning public debt.

Japanese companies have increasingly relied on overseas markets to drive growth and offset lackluster demand at home. But exports dropped 4.9 percent during the latest quarter, the sharpest decline in more than two years, due to a strong yen, slowing overseas economies and a slump in domestic industrial production.

A strong yen is painful for Japan because it reduces the value of foreign earnings for exporters like auto and electronics manufacturers, and makes Japanese goods more expensive in overseas markets.

The dollar hit a record post-World War II low of 76.25 yen in the days following the March 11 earthquake and tsunami.

Economy Minister Kaoru Yosano was more upbeat about the quarterly growth figures, which he said reflected gradual improvements in consumer confidence and industrial production as the supply of parts recovers. He said growing public works investment in reconstruction projects is also expected to provide further support for the economy.

"We expect the economy to achieve a relatively high growth in the second half of this fiscal year," Yosano told reporters.

Japanese stocks reacted favorably to the smaller-than-expected contraction of the economy in the quarter right after the disaster.

The Nikkei 225 benchmark index was 0.9 percent higher at 9,045.17 after the GDP announcement, which also sent other Asian stocks higher.

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Japan's GDP shrinks annual 1.3 percent in 2nd quarter - Vancouver Sun

Japan's economy shrank 1.3 percent on an annualized basis in the second quarter of the year compared to the January-March quarter, as the disruption in the supply of key parts led to a decline in exports and as private consumption remained sluggish in the wake of the March 11 disaster, the government said Monday.

Although the gross domestic product marked the third straight quarterly decline in inflation-adjusted real terms, the rate of decline in the April-June quarter was smaller than the annualized 3.6 percent decline posted in the previous quarter, the Cabinet Office said in a preliminary report.

The latest result corresponds to a 0.3 percent slide from the previous quarter.

As economic activity appears to be recovering, the nation's economy is highly likely to expand in the next quarter, according to economists.

It is the first time the GDP has experienced three consecutive quarterly declines since the four straight quarterly contractions starting in April-June 2008 that were propelled by the collapse of the U.S. investment bank Lehman Brothers Holdings Inc. in September that year.

With the disruption of the supply of key parts following the disaster, the output of automobiles and other products plunged, resulting in a 4.9 percent decline in exports.

Meanwhile, private-sector housing construction fell 1.9 percent, as construction was stopped or housing starts were postponed, mainly in the disaster-affected areas.

Private consumption, which accounts for about 60 percent of GDP, slipped 0.1 percent in the April-June quarter, as sales of automobiles dropped and people apparently avoided travel or dining out.

But the rate of decline was smaller than the 0.6 percent drop posted in the previous quarter.

Meanwhile, corporate capital investment rose 0.2 percent, the first rise in two quarters, as companies, which had put production on hold shortly after the March disaster, gradually increased their output of materials, equipment and machinery.

In addition, there was a lull in reducing inventories following the decline in production, and stocks of such durable goods as cars began building up, pushing the real GDP up by 0.3 percent.

Public investment increased 3 percent, the first growth in six quarters, due to accelerated construction of temporary housing for disaster victims.

"We can expect to realize relatively high growth in the latter half of this year," Kaoru Yosano, state minister for economic and fiscal policy, said at a news conference. "We want to pay particular attention to the possible impact on our economy of a growing sense of uncertainty in the world economy and the rising strength of the yen."

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