Japan economy shrank less than thought, data shows


July 15, 2010 Updated Jun 14, 2009 at 9:41 PM CDT

Japan's economy shrank less than initially thought in the first quarter, data has shown, as hopes grew of a recovery from its worst recession since World War II.

The world's second biggest economy contracted 14.2 percent in the first three months of 2009, according to revised government figures, an improvement on the 15.2 percent shrinkage reported last month.

Rising sentiment for a rebound in the economy was reflected in the stock market, where shares broke the 10,000 point barrier for the first time in eight months, although they closed the day just below that mark.

"Optimism about a recovery is increasing," said Ryuta Otsuka, strategist at Toyo Securities. "Risk money which had fled to bond markets is beginning to return to stocks and commodity markets."

The new data also said the Asian powerhouse economy shrank by 3.8 percent in the January-March period against the previous quarter, less than the initial estimate of a 4.0 percent fall.

However, the annualised 14.2 percent drop was still Japan's worst on record since comparable data were first kept in 1955.

Tokyo voiced optimism at the performance in the Nikkei, which touched 10,022.23 in the morning, breaking the 10,000 mark for the first time since October 8. However, it closed the day 0.1 percent lower at 9,981.33.

"The cabinet of Prime Minister Taro Aso has implemented a number of economic stimulus packages, which are kicking in throughout the nation," Chief Cabinet Secretary Takeo Kawamura told a news conference.

Japan, Asia's biggest economy, entered recession in the second quarter of 2008 as demand slowed sharply for its autos and big-ticket export items, and the downturn has since become Japan's worst since World War II.

In an effort to ease the slump, the government announced a series of economic stimulus packages, including a 15.4-trillion-yen (156 billion dollar) stimulus injection.

Recent economic data, including gains in industrial output, have brought rays of hope for a budding recovery.

But they have been tempered by rising unemployment and a drop in wholesale prices that threatens deflation. Wholesale prices fell 5.4 percent year on year last month, their sharpest drop in 22 years.

Shinko Research Institute economist Norio Miyagawa shrugged off the revised economic data and said: "Japan remains in a weak growth trend."

He also said consumption would likely stay lacklustre while still piled-up inventories could weigh on industrial production.

On a more hopeful note, he said that "on-quarter figures in the April-June period may turn to positive as strong demand from China and other countries could help push up" Japanese exports.

Daisuke Uno, chief market strategist of Sumitomo Mitsui Banking Corp., was sceptical about the stock market's recent optimistic sentiment.

"The real economy is not improving, with capital only flowing into speculative markets," he said. "Demand needs to improve first... Optimism and pessimism will likely come in turns for a while."

-- Dow Jones Newswires contributed to this report --

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