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Japan economy slows more than expected in second quarter

A man looks out on the sea as a cargo ship loaded with containers is seen at a port in Tokyo.

YURIKO NAKAO/REUTERS

Japan's economic expansion slowed more than expected in the second quarter, data showed on Monday, as a rebound in consumer spending starts to lose momentum and Europe's debt crisis weighs on global demand.

The world's third-largest economy grew 0.3 per cent in the April-June period, less than the median forecast of 0.6 per cent growth and slowing sharply from a revised 1.3 per cent expansion in the previous quarter, the Cabinet Office said.

The data highlights the Bank of Japan's growing concern that slowing exports will weigh on economic growth in the second half of this year, which could set the stage for additional monetary easing in coming months.

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Japan's gross domestic product (GDP) figure translated into an annualized increase of 1.4 per cent, smaller than the median forecast of 2.5 per cent growth and falling short of 1.5 per cent annualized growth in the United States in the same quarter.

"Japan's economy continues in an uptrend led by domestic demand," Economics Minister Motohisa Furukawa said in a statement issued after the data release.

Private consumption, which makes up about 60 per cent of the economy, grew just 0.1 per cent from the previous quarter, below a median estimate of 0.3 per cent.

External demand shaved 0.1 percentage point off GDP, while domestic demand contributed 0.4 point, the data showed.

Japan's economy is expected to outperform most of its G7 peers this year helped by solid domestic demand, but analysts have slashed forecasts for factory output as the slowdown in the global economy becomes more pronounced.

The Bank of Japan left monetary policy unchanged last week but lowered its assessment of exports and factory output, a sign it is ready to ease policy further if Japan's recovery prospects are threatened.

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