Japan's tsunami setback

Output shrank 0.6% in the October-December quarter - twice as bad as expected - dealing a blow to Japan's efforts to fight back from the tsunami which devastated the north-east coast and caused a nuclear disaster nearly a year ago.

Major manufacturers such as Sony and Honda were hit badly before Christmas by a drop in export demand and flooding in Thailand which hit production at their factories there. The setback - which came against a backdrop of global growth woes - came just as many exporters appeared to have recovered from last's March earthquake and tsunami.

A strong yen also hampered Japan, thwarting efforts to repatriate funds to rebuild following the disaster and prompting emergency currency interventions to weaken the yen last year. Public investment also dropped as politicians bickered over a 12 trillion yen (£98 billion) reconstruction package.

ING Bank's Lindsay Coburn said: "The growth track of the economy is clearly weak, with export growth remaining lacklustre and company earnings subdued. The key question is whether real GDP will contract again in the March quarter, which means Japan is (technically) in recession right now. This should be averted by higher spending on reconstruction by the government."