Japan's economy contracted by more than first thought in the fourth quarter of 2010 due to weaker than expected business investment and private consumption, data showed today.
The economy shrank by a revised 1.3% compared to a year earlier, more than an initial estimate of 1.1%, as expiring subsidies hit car sales, a new tobacco tax sapped cigarette demand and a strong yen hurt exports.
Japanese GDP data is subject to constant revision and the latest was in line with the median forecast in a survey of economists by Dow Jones Newswires and the Nikkei business daily.
The data also confirmed Japan's economy grew 3.9% in 2010 but ceded its 42-year ranking as the world's second-biggest economy to China, which first eclipsed its neighbour in the second quarter.
While Japan was expected to fall behind a surging China in the year, the data underlined the weak state of a Japanese economy burdened by deflation, soft domestic demand and the industrialised world's biggest debt.
Private consumption slipped by a revised 0.8% from the previous quarter, worse than an initial estimate of 0.7%. Car sales were hit by the expiry of subsidies to encourage the purchase of green vehicles, and cigarette sales were dented by Japan's biggest ever tobacco tax hike.
Exports slipped in the quarter as the yen surged to 15-year highs against the dollar, making Japanese goods more expensive overseas and eroding repatriated profits.
However, analysts expect the economy to rebound in January-March as the rising tide of global recovery lifts Japan, amid a recent pick-up in output and exports.
But there are worries about higher oil and other commodity prices as unrest across the Middle East and North Africa threatens to increase import costs, which manufacturers would be unable to pass onto consumers amid weak domestic demand.
Ratings agency Standard & Poor's warned this week that political uncertainty in Japan threatens to weigh on the country's recovery and that growth this year would not come close to pre-crisis levels.
