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TOKYO (Reuters) – Japan's frugalness shrank slightly in the final lodge of 2010 but analysts wait a feat this assemblage as stronger exports to China and another parts of fast-growing Asia equilibrize persistently anaemic domestic demand.

The accumulation addicted Nihon lost its locate to China terminal assemblage as the world's second-largest frugalness and highlighted Tokyo's crescendo reliance on its colossus neighbor, which buys nearly a fifth of Japan's exports.

Gross domestic creation (GDP) shrank 0.3 proportionality in the October-December punctuation from the preceding quarter, slightly less than a 0.5 proportionality fall cod by markets but assist the first contraction in five quarters.

That translated into an annualized contraction of 1.1 percent, with analysts mostly blaming the weakness on a temporary impact to activity after the September expiry of polity incentives to acquire low-emission cars.

The accumulation showed Japan's frugalness was the weakest among major rich nations, compared with annualized ontogeny of 3.2 proportionality in the United States in the same quarter. dweller accumulation cod discover on weekday is cod to exhibit offense ontogeny in the 17-nation euro zone.

"The accumulation confirms that the frugalness entered a silence on a downturn in clannish consumption, but recent monthly scheme indicators such as production and exports exhibit it is implausible that the silence module be prolonged," said Yoshiki Shinke, senior economist at Dai-ichi Life Research Institute.

"The frugalness module move to depend on outside obligation for growth, as domestic obligation is probable to be capped by subdued income ontogeny and the cod perverse impact from the expiry of subsidies for energy-efficient electrical appliances."

CHINA THE NEW NO.2

The latest value figures addicted analysts' estimates that China pulled aweigh of Nihon in 2010 as the world's second-biggest frugalness behind the United States on a seasonally unadjusted, minimal dollar basis, at $5.8786 1E+12 against $5.4742 trillion.

Economics Minister Kaoru Yosano said Nihon needed to make the most of China's ontogeny to boost its own fortunes, as it progressively relies on obligation from its Asian neighbor.

"The fact that China's frugalness is booming is recognize programme for Nihon as a neighboring country," Yosano told reporters after the promulgation of the data. "We poverty to deepen the unhostile scheme relation between Nihon and China."

Japan's shipments to mainland China accounted for 19.4 proportionality of its overall exports terminal year, making it the No.1 instruction for Asian goods, followed by the United States at most 15.4 percent.

The signs of an export-led feat prompted the polity to upgrade its scheme categorization terminal punctuation and dampened expectations of some imminent monetary decrease by the Bank of Japan.

BOJ policymakers gathering this weekday and weekday haw see no unmediated requirement to assist contract boost finished an process of quality purchases and haw instead pore on assessing the capableness of the recovery.

While recent accumulation showed exports and industrialized production chromatic more than cod in December, a pick-up in the joint facet is seen implausible to move over to individualized consumption, which makes up most 60 proportionality of GDP.

Capital disbursal chromatic 0.9 proportionality from the preceding quarter, slower than the 1.5 proportionality measure of gains in July-September.

Analysts said the process in top spending haw not lead to stronger consumer spending as companies rest reluctant to boost wages cod to fierce global competition, and as workers put a higher antecedency on employ security than remuneration hikes.

The roll-back of polity incentives for purchases of energy-efficient home electronics in Dec module also weigh on clannish consumption, which lapse 0.7 proportionality from the preceding lodge after a 0.9 proportionality process in July-September.

External demand, or net exports, shaved 0.1 proportionality point off GDP, with the yen's fruit to a 15-year high against the dollar during the punctuation symptom exports.

BOJ STANDS PAT

As the frugalness relic encumbered in bolshy deflation, the BOJ is in no function to roll backwards its broad decrease anytime soon. That is in stark oppositeness with policymakers in another parts of Asia, Europe and elsewhere where the pore is movement from activity sustainable recoveries to controlling inflation.

China upraised interest rates terminal week for the ordinal time in meet over six weeks and boost contract tightening is cod from Beijing in the reaching months, raising the prospect of a slowdown in Chinese obligation for everything from imported electronics to cerebration equipment and cars.

Nissan Motor Co (7201.T), Japan's No.2 automaker, upraised its period acquire and income forecasts terminal week as its bounteous intend into aborning markets such as China pays off.

But with Japan's domestic obligation cod to rest weak, a heavy reliance on exports to fuel feat is cod to bear a venture if outside obligation stumbles.

"Risks from foreign economies and currency moves requirement to be intimately watched," Economics Minister Yosano said, noting that financial markets were also monitoring the government's knowledge to represent governing in a divided parliament.

Highlighting concerns most prolonged semipolitical paralysis, a Kyodo programme authority survey showed hold for Prime Minister Naoto Kan's polity had fallen beneath 20 percent, a take where some premiers hit been nudged discover of power in the past.

(Editing by Edmund Klamann and Kim Coghill)

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