Japan’s economy shrinks, adding to global concerns

TOKYO, Sept 10, 2007 (AFP) - Japan's economy contracted in the second quarter of 2007 as firms cut spending on new factories and equipment, the government said Monday, adding to jitters over the global economic climate.

Past GDP estimates were also revised, showing the economy shrank by 0.1 percent in the third quarter of 2006, despite the government's official view that Japan is having its longest sustained economic recovery in post-war times.

The setback to Japan's economic recovery, which comes just as the US economy shows signs of faltering, further reduced expectations of the Bank of Japan raising its super-low interest rates again any time soon.

Japan's gross domestic product (GDP) shrank by 0.3 percent in the three months to June from the previous quarter and by 1.

2 percent on an annualised basis, the Cabinet Office said.

The figures were much worse than an initial estimate of positive quarter-on-quarter growth of 0.

1 percent for an annualised rate of 0.5 percent.

It was the first contraction in three quarters for Japan, which has been slowly recovering after falling into the economic doldrums in the early 1990s.

Corporate capital spending, which had been the key growth driver of the w