Japan sinks economic outlook for this year, predicts contraction

Dec 22, 2011, 10:37 GMT

Tokyo - Japan's government on Thursday lowered its outlook for the economy this fiscal year and predicted a contraction because of the yen's strength and the European debt crisis.

The world's third-largest economy would shrink 0.1 per cent in the year ending March 31, the Cabinet Office said. In August, the government had predicted growth of 0.5 per cent because of strong demand as Japan rebuilds from March's earthquake and tsunami.

The government also sank its predictions for the coming fiscal year to 2.2-per-cent growth after earlier estimating a 2.7- to 2.9-per-cent expansion.

In predicting growth for the year that begins April 1, the government said it was counting on a drawdown of the eurozone crisis and an improvement in the world economy, meaning demand for Japan's exports would revive.

Japan's export-reliant economy has been hit hard this year by the strength of its currency, which makes its goods more expensive abroad and reduces earnings that are repatriated, and sinking demand because of global economic uncertainties.

In predicting growth in the next fiscal year, the government said it expected the large state outlays on rebuilding after the March disaster would stimulate the economy and lead to rising investment.

It pushed through four supplementary budgets this fiscal year to cushion the economic impact of the largest quake ever recorded in Japan at magnitude 9 and the ensuing tsunami.