Japan’s economy contracted in the fourth quarter when compared with the previous three months, though analysts are optimistic about the country’s prospects for the rest of the year.
Japan’s gross domestic product fell 0.3 percent in the October-December quarter as the end of generous government incentives on environmentally friendly cars resulted in a temporary decline in spending. At an annualized rate, Japan’s economy shrank 1.1 percent from the previous quarter.
The contraction, the first in five quarters, brought Japan’s economy for 2010 to $5.47 trillion, the Japanese Cabinet Office said. That compared with a $5.88 trillion economy for fast-growing China. The latest numbers were further evidence of China’s rapid ascent as an economic superpower, as China surpassed Japan last summer after the half-year gross domestic product numbers were released. Just five years ago, China’s gross domestic product was around $2.3 trillion, about half Japan’s.
Japan’s economy has stagnated over the last two decades, reflecting its continued decline in economic and political clout.
The country had the world’s second-largest economy after the United States for much of the last four decades. In the 1980s, its rapid growth even led to talk of the Japanese economy’s overtaking that of the United States.
But while Japan’s economy is now mature and its population quickly aging, China is in the throes of urbanization and industrialization. Still, China’s per-capita income is about $3,600, less than one-tenth that of the United States or Japan.
Japan’s economy, however, has benefited from China’s rapid growth, initially as businesses shifted production there to take advantage of lower costs, and as local incomes rose, by tapping an increasingly lucrative market for Japanese goods.
Though Japan’s economy contracted in the fourth quarter, it expanded 3.9 percent over all in 2010 compared with a year earlier, signaling a recovery from a punishing recession in the wake of the global economic crisis.
Last month, the Japanese government said in its economic assessment that its economy could soon rebound, as exports and factory output are helped by strong demand from China and other emerging economies in Asia.
“While weakness will remain for the time being, the Japanese economy is expected to pick up on improvements in overseas economies and effects of government policy steps,” Kaoru Yosano, economy minister, told reporters after the release of the data.
The outlook has lowered expectations that the Bank of Japan, which is starting a two-day policy meeting on Monday, will take any imminent measures to ease monetary policy.
In the October-December quarter, private consumption in Japan fell 0.7 compared with the previous quarter, dragged lower by the expiration in September of generous government benefits for fuel-efficient cars. A tax increase on tobacco in October also hurt cigarette sales. Net exports were hurt by a surge in the yen to 15-year highs, which has made Japan’s exports less competitive. Capital investment rose 0.9 percent from the previous quarter, falling short of the 1.5 percent pace seen in July to September.
The news came just over two weeks after the credit ratings agency Standard & Poor’sdowngraded Japan’s long-term sovereign debt, to AA- from AA, three levels below the highest possible rating. It was the first time S.& P. had downgraded Japanese government debt since 2002.
A rival ratings agency, Moody’s, kept its Aa2 rating for Japan, its third-highest rating, though it later warned that the assessment might be downgraded if the nation failed to carry out fiscal reforms.
Japan’s liabilities will hit 204 percent of its gross domestic product this year, outstripping the 137 percent for debt-ridden Greece, according to figures from the Organization for Economic Cooperation and Development.
When S.& P. downgraded Japan, it said that the Japanese government had no “coherent strategy” to address its ballooning deficit, and that its already high debt burden was likely to continue to rise further than it had anticipated before the financial crisis. A rapidly aging population is adding to the country’s woes, raising the likelihood of increasing social security and pension obligations in the future.
S.& P. said then that it expected Japan’s debt to continue rising until the middle of this decade, and “We do not forecast the government achieving a primary balance before 2020, unless a significant fiscal consolidation program is implemented beforehand.”
Japan’s G.D.P. numbers did not affect the stock market in the country. The benchmark Nikkei stock index was up 0.8 percent at midday on Monday. The market was closed on Friday for a national holiday.