Japanese economic contraction worse than expected

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Japanese economic contraction worse than expected

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Japan’s economy shrank more-than-expected in the final three months of last year falling by 0.6 percent from Q3.

It was hurt by slowing global growth, floods in Thailand where many Japanese companies have production facilities, and a strong yen.

On an annualised basis, the economy shrank 2.3 percent in the fourth quarter and for the whole of 2011 output was down by 0.9 percent.

The latest number cast doubt on hopes for a pick up in Japan’s economic activity in the early part of this year.

They are bad news for Prime Minister Yoshihiko Noda’s government which is trying to persuade a skeptical public that Japan is strong enough to double the country’s sales tax without prolonging years of lacklustre economic performance.

He plans to double the five percent sales tax by late 2015 to help reduce the country’s mammoth public debt.

As well as slowing exports, domestic demand also weakened in a worrying sign that the economic boost from rebuilding the earthquake-devastated northeast coast is slow to materialise.

The Tokyo government and the central bank as well as private economists expect Japan’s economy to resume moderate growth this year thanks to post-disaster reconstruction efforts and emerging economies’ growth.

Still, Europe’s sovereign debt crisis and a persistently strong yen cloud the outlook.