Revised data showed Japan's economy shrank 0.9 percent in the first quarter, unchanged from the initial estimate as inventory adjustments offset weaker corporate spending, but analysts said a recovery is on track as industrial production rebounds.
Manufacturers are making progress in restoring supply chains after north-east Japan's devastating March earthquake, fuelling hopes for an early rebound in output and exports.
Many economists expect GDP to resume expanding in July-September after a likely three consecutive quarters of contraction, reducing the need for additional easing by the Bank of Japan. Signs of a slowdown in overseas economies pose a risk to this scenario, but many economists expect the lull to be short-lived.
"I still expect the economy to recover in the second half of the year," said Yasuo Yamamoto, senior economist at Mizuho Research Institute in Tokyo. The 0.9 percent revised contraction in first quarter gross domestic product compares with the median market forecast for a 0.8 percent fall and was unchanged from the preliminary reading.
On an annualised basis, the economy contracted a revised 3.5 percent, against a 3.0 percent fall expected by economists and a preliminary 3.7 percent figure. The revised numbers, released by the Cabinet Office on Thursday, confirmed that Japan's economy slipped into recession after the triple blow of the March earthquake, tsunami and ensuing crisis at a major nuclear plant.
Capital expenditure fell a revised 1.3 percent, compared with the government's preliminary reading of a 0.9 percent decline and a 0.8 percent fall expected by economists. Industrial output rose 1.0 percent in April, rebounding from a record decline in the previous month. Companies also said they planned to increase production further in May and June. In addition, consumer confidence improved in May, recovering from a record fall the previous month, separate Cabinet Office data showed on Thursday.
The Bank of Japan will consider expanding a loan scheme that targets growth industries by up to 1 trillion yen ($12 billion) at a rate review next week, sources familiar with the central bank's thinking have told Reuters, keeping up its efforts to battle chronic ills that are plaguing the economy.