TOKYO: Japan's economy shrank by an annualised 2.3 percent in the October-December quarter, official data showed Monday, as a strong yen and weak overseas demand sapped exports.
The contraction was more severe than the 1.6 percent forecast by economists surveyed by Dow Jones Newswires and sharply contrasted with a revised quarter-on-quarter growth of 7.0 percent for the July-September period.
Second quarter growth had previously been given at 5.6 percent.
Severe flooding in Thailand during the autumn disrupted global supply chains and the production capability of Japanese manufacturers, particularly electronics and automakers, and depressed the macroeconomic data.
But Economic and Fiscal Policy Minister Motohisa Furukawa said the world's third largest economy continued its "upward movement" with exports and production improving on month in December.
The quarterly contraction "came after external demand was significantly reduced due to the one-off factor of the Thai flooding, which came amid the weak recovery of economies overseas", he said in a statement.
"Having taken into account (the recovery of exports and production in December) and the overall economic situation, it is assessed that upward movement is continuing," he said.
The contraction stood in sharp contrast to the annualised 7.0 percent growth on quarter in the July-September period, as manufacturers recovered rapidly from the March 11 quake and tsunami disaster, in part boosted by reconstruction demand.
The March disasters smashed complex supply chains and shuttered factories as well as leaving more than 19,000 people dead or missing along the northern Pacific coast.
Economic activity has gradually picked up, but a soaring yen -- which remains near its record high -- and the eurozone debt crisis have hurt exporters, Japan's main economic drivers.
For 2011, the economy contracted 0.9 percent, the Cabinet Office said, after expanding 4.4 percent in 2010.
The government in December downgraded its growth forecasts for the year to March 2012 to a contraction of 0.1 percent but expected a 2.2 percent expansion in the year from April.
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