Japan shrinks on floods, strong yen

TOKYO - Agence France-Presse

Japan’s economy shrank in the final three months of 2011 as exports suffered, data showed yesterday, but analysts say disaster reconstruction projects at home are likely to stave off a new recession.

On an annualized basis, the economy contracted a worse-than-expected 2.3 percent in the October-December quarter, a sharp drop on the previous quarter’s growth, owing to the strong yen, falling overseas demand and flooding in Thailand that hammered production.

The world’s number-three economy shrank 0.6 percent quarter-on-quarter, the Cabinet Office said, and 0.9 percent through 2011. It grew 4.4 percent in 2010.

However, ministers and analysts tipped a rebound this year as government reconstruction programs after the March 11 disasters begin to bear fruit.

Thailand effect

Severe flooding in Thailand in the autumn disrupted global supply chains and the production capability of Japanese manufacturers, particularly electronics suppliers and auto makers, just as they were recovering from the quake-tsunami disaster at home.

The floods compounded Japan Inc.’s struggles against a continually strong yen, which is sitting close to record highs against the dollar and is also putting pressure on the euro.

The data came as the country’s key export markets in the United States and Europe struggle with huge debt troubles and unemployment, struggling to get back on track after the global downturn.
The contraction was more severe than the annualized 1.6 percent drop forecast by economists surveyed by Dow Jones Newswires.

It also sharply contrasted to a revised quarter-on-quarter growth of annualized 7.0 percent for the July-September period, which was in part boosted by post-March 11 reconstruction.