Japan's drop in GDP slows to 1.1 per cent

The drop was driven by a slowing in exports and fading of government stimulus programmes. Photo / Thinkstock

Japan's gross domestic product fell less than estimated in the fourth quarter in a pullback that may prove temporary as overseas demand revives production after the nation fell behind China as the world's second-largest economy.

The annualised 1.1 per cent drop in GDP in the three months through December was driven by a slowing in exports and fading of government stimulus programmes, Cabinet Office figures showed yesterday in Tokyo.

The median forecast of 26 economists surveyed by Bloomberg News was for a 2 per cent drop.

Japan's stocks rallied amid confidence the global economic recovery will strengthen as oil prices retreat and international political tensions subside with the resignation of Egyptian President Hosni Mubarak.

The rebound is set to benefit Japanese exporters, with Toyota and Komatsu this year raising profit forecasts because of increasing sales abroad.

"This was just a temporary contraction and growth may accelerate more than investors anticipate this quarter and next," said Kyohei Morita, chief economist at Barclays Capital in Tokyo, who forecast a 1.3 per cent decline.

"The export decline was smaller than expected and shipments will keep expanding as long as Asia's economies continue to boom."

The Nikkei 225 Stock Average has risen 4.5 per cent this year. Japan's benchmark 10-year government bond yields have also climbed since the start of 2010, reaching a 10-month high of 1.35 per cent last week.

- BLOOMBERG