Japan's economy contracted more than expected in the second quarter, revised data showed today.
Economists had expected a weak number, after a sharp slide in corporate capital expenditure that has been a key driver of growth, but the 0.3 per cent fall was bigger than the market forecast for a 0.2 per cent contraction.
The reverse, after two straight quarters of expansion and an early government estimate of modest growth in the quarter, had analysts talking about delays to long-planned interest rate increases by the Bank of Japan (BOJ), possibly to next year.
The Nikkei average fell 2.2 per cent after the data's release, although the drop was due more to market ructions.
With weak US jobs data sending the dollar to 15-year lows and boosting expectations for a deep US rate cut, the yen held its ground.
The Bank of Japan is determined to raise its ultra-low key interest rate of 0.5 per cent, to get monetary policy back to normal, but the market turbulence stemming from US home-lending woes has stalled its plans.