AP reported that Japan's economy contracted for a third straight quarter as consumer spending and factory production continued to suffer in the aftermath of the March earthquake and tsunami.

The Cabinet Office said that real gross domestic product, a measure of the value of all goods and services produced domestically, contracted at an annualized rate of 1.3% in the April to June 2011 quarter.

The figures did provide a glimmer of optimism as a much bigger contraction was expected. A Kyodo News agency survey of analysts had forecast the economy to shrink 2.6%.

The March 11th 2011 earthquake and tsunami killed thousands of people and wiped out large parts of Japan's northern coast. The disasters damaged many factories in the region, causing severe shortages of parts and components for manufacturers across the country, including automakers. The tsunami also crippled a nuclear power plant and caused a widespread power crunch, especially in the Tokyo region, adding to the headaches faced by businesses and households.

The Cabinet office said that GDP fell 0.3% QoQ. Consumer spending, which accounts for some 60% of the economy, dipped 0.1%. Capital investment by companies was up just 0.2% from the previous quarter. The figures showed that the nation's economy slumped in wide range of areas and still needs close attention.

Mr Yoshihiko Noda finance minister of Japan said that "We must steer the economy very carefully because we still have downside risks including the problem of the rising yen."

(Sourced from Associated Press)