News Room - Business/Economics

Posted on 12 Sep 2008

Japan reports economy shrank 3 percent April-June

Japan said Friday its economy shrank at a 3 percent annual rate in the April-June quarter, in a lowered revision of an already pessimistic reading for the world's second biggest economy.

Fears about a global downturn have been growing amid soaring prices of gas, steel, food and other goods. Signs of a slowdown in the U.S., Japan's major trading partner, have added to the looming worries.

Tatsushi Shikano, senior economist at Mitsubishi UFJ Securities Co. in Tokyo, said the pessimistic revision had been expected, given recent indicators that show declines in company investments, exports and consumer spending.

"Our view of a weak economy was once again confirmed," he said.

The economy was expected to stay sluggish for the next few months, staying flat at best, and may continue to contract, Shikano said.

The Cabinet office reported Japan's gross domestic product - a measure of the value of its goods and services - contracted 0.7 percent in the second quarter from the previous quarter.

That was worse than the 0.6 percent contraction given in a preliminary report released August. For the annual rate, Japan had said the economy contracted 2.4 percent in its earlier report.

Since the "bubble" economy of overspending burst in the 1990s, Japan had been eking out moderate growth for much of the time in recent years.

But these days some Japanese officials are seriously worried about heading into a possible recession because of emerging risks largely outside Japan's control.

The latest data showed revision in several categories from the initial report, including lower domestic demand, private investment, exports and public spending.

Friday's data also show the Japanese economy sinking into contraction after three straight quarters of moderate growth.

In the April-June quarter of 2007 the government had said that the economy had shrunk - at an annual rate of 1.4 percent. After that the annual rates of growth had been at about 1 percent and 2 percent levels.

In the January-March 2008 period, the economy had grown a relatively healthy 2.8 percent.

The lagging economy is expected to be a key issue in the campaign to find a new prime minister after Yasuo Fukuda abruptly announced his resignation earlier this month.

The ruling party is selecting its new leader later this month among five candidates. Partly because of the growing worries about the economy, former Foreign Minister Taro Aso, who is promising more stimulus spending to wrest Japan out of its doldrums, is widely viewed as the likely victor.