Japan's economy shrinks in April-June for 1st time in 4 quarters

TOKYO, Aug. 13 Kyodo - Japan's economy shrank at an annualized rate of 2.4 percent in real terms in the April-June quarter for the first contraction in four quarters on weak exports and domestic consumption, the government said Wednesday.

The fall in gross domestic product for the second quarter of 2008 added to evidence that the nation's economy has entered a downturn given the economic slowdown in the United States, one of the largest destinations for Japaneseexports, and globally rising inflation with oil and food prices driven higher.

The annualized figure corresponds to a 0.6 percent contraction in GDP from the January-March quarter, the weakest since the July-September period of 2001 when the economy shrank 1.1 percent, the Cabinet Office said in a preliminaryreport.

The economy slumped after the downwardly revised quarterly expansions of 0.8 percent in the January-March quarter and 0.6 percent in the October-December2007 period.

Despite the weak numbers, Economic and Fiscal Policy Minister Kaoru Yosano sounded optimistic, suggesting the negative growth does not well reflectJapan's economic fundamentals and may be a temporary phenomenon.

While admitting to ''downside risks'' for the country's economic growth, Yosano also said at a news conference after the release of the data that the slowdown is due largely to ''external factors'' which Japan cannot control, and that the Japanese economy itself ''remains firm.'' The headline data compare with an average market forecast of an annualized 2.3 percent contraction and a 0.6 percent quarterly decline in a Kyodo News surveyof 26 think tanks and financial institutions.

In nominal terms, which are not adjusted for price changes, the economy shrank0.7 percent quarter-on-quarter, or an annualized 2.7 percent.

Consumer spending, which accounts for about 55 percent of Japan's GDP, fell a real 0.5 percent from the previous quarter, marking the first decline since theJuly-September period of 2006.

People spent less on eating and drinking, heating oil and electricity, theCabinet Office said.

Domestic demand pushed GDP 0.6 percentage point lower.

Corporate capital spending declined 0.2 percent for the second quarterly fallas rising energy and raw material costs hit companies' balance sheets.

Exports decreased 2.3 percent, the first fall in 13 quarters, as cars, nonferrous metals and steel products lost their competitive edge. Bydestination, exports to Europe shrank the most.

Demand from abroad pushed GDP up 0.02 point, but the pace of increase was theslowest since the January-March quarter of 2005.

Imports, meanwhile, shrank 2.8 percent for the first decline in three quarterson decreases in crude oil, natural gas and other products.

''The weak GDP data ended up supporting the view that (the Japanese economy) has been in a contraction phase since late last year,'' Masaaki Kanno, chiefeconomist at JPMorgan Securities, said.

''Slower exports weakened domestic industrial production and consequently dealta critical blow to the economy,'' Kanno said.

Recently falling oil prices may help offer a brighter outlook, with the Japanese economy returning to its recovery track after a while, he said, but added that ''there remains uncertainty over whether shocks from abroad may ease soon because the U.S. and European economies still have further risks of slowdown.'' Housing investment dropped 3.4 percent, reflecting slower housing starts on repercussions from the stricter building regulation the government introducedlast year.

Public investment slipped 5.2 percent, the biggest fall since the April-Junequarter of 2006.

The GDP deflator, a key inflation gauge, dropped 1.6 percent from a yearearlier for the 41st straight quarter of fall.

GDP is the total value of goods and service produced domestically. Real GDPdata are adjusted for price and seasonal variations.