The Tokyo Stock Exchange

Japan's economy shrank at a 1.2 percent annual rate in the three months ended June 30th as business capital spending plunged, the Cabinet Office said in Tokyo today.

The Japanese economy is the second biggest in the world.

The government had initially estimated a 0.5 percent expansion. Market analysts had been expecting a downward revision following report last week that capital spending had slowed sharply. Preliminary data indicated capital spending had grown at an annualised rate of 4.9 per cent, but this was revised down to a slump of 4.8 per cent. However, the fall of 0.3 per cent in quarter-on-quarter GDP growth against a preliminary estimate of 0.1 per cent growth was deeper than expected.

The Cabinet Office noted that despite the drop in the second quarter, the economy expanded at a 2.5 percent annual pace in the first two quarters, higher than the economy's potential growth rate of 2 percent.

Bond yields fell to the lowest level since February 2006 on speculation that the Bank of Japan will keep its key interest rate at 0.5 percent to forestall a recession. The fortunes of the Japanese economy are closely linked with the US, its biggest export market where there is currently fears of a recession because of the housing and credit crisis.

Toyota, Japan's biggest carmaker has had its second straight month of US sales declines August, the first back-to-back fall in 4 1/2 years.

Toyota said last week that it aims to sell 10.4 million vehicles worldwide in 2009, The Wall Street Journal reported.

It hopes to reach its target by expanding its market share in the US, and boosting sales by as much as 50% in the fast-growing markets in Brazil, Russia, India and China. The goal, if achieved, would make Toyota the first car company to sell more than 10 million cars annually, the WSJ said.

"New markets outside Japan, the US and Europe are the key to future success," Chief Executive Katsuaki Watanabe said.

The target represents an 11% increase from Toyota's estimated global sales of 9.34 million vehicles for 2007

Sales in Japan of new cars, trucks and buses fell 1.9 percent in August from a year earlier to 227,737 units, falling for the 26th straight month, the Japan Automobile Dealers Association said last Monday.

The yield on the benchmark 10-year bond fell 7.5 basis points to 1.515 percent by early afternoon in Tokyo.

Asian stocks fell the most in three weeks after Friday's report that the US unexpectedly shed jobs for the first time in four years and today's news on Japan's economy.

In Tokyo, the Nikkei 255 fell by 2.1%; the Shanghai All Share index is down 0.46% and in Seoul, the Kopi index is down 2.66%.

All markets in the region are down - latest indices.

RELATED

Economist Pocket World in Figures 2008: Quality of life best in cold Norway and Iceland - Ireland 4th and Japan 7th where domestic car sales have hit 30-year low and high level of anxiety about daily lives is at 40-year high