Tokyo - Japan's economy contracted at an annualized rate of 3 per cent last quarter, more than initially estimated, the government said Friday, indicating that the world's second-largest economy would not shake off its economic doldrums any time soon.

The government had previously estimated an annualized contraction in the gross domestic product (GDP) of 2.4 per cent in the April-to-June quarter.

The fall was the first for Japan in four quarters.

Friday's downward revision was caused by weaker capital spending and exports, the Cabinet Office said. Corporate capital spending declined a real 0.5 per cent, and exports dropped 2.5 per cent, it said.

Compared with the previous quarter, Japan's GDP shrank by 0.7 per cent, up 0.1 per cent from the earlier government estimate, the Cabinet Office said.

The Bank of Japan last week predicted that Japan's economy was likely to remain sluggish for the time being. The body was expected to leave interest rates unchanged at 0.5 per cent for the rest of the year, inhibited in its options to fight rising inflation by the bogged-down economy.

Analysts predicted the economy would slow until the end of the year but said the recession would be shallow.

Japan's government, currently in upheaval after the resignation of Prime Minister Yasuo Fukuda, has little wriggle room to boost the ailing economy with public debt amounting to about 180 per cent of the GDP.

Kaoru Yosano, economy and fiscal policy minister, said the only thing to do was to wait until the country's export markets recovered. He is one of five contenders to take over Japan's ruling Liberal Democratic Party and succeed Fukuda.

Japan's economy has been hit by rising prices and deteriorating demand from its export markets, heavily affected by the economic downturn triggered by the US mortgage crisis.

Despite those challenges, Japan was believed to be in a better position to withstand the downturn after its companies streamlined their operations following a decade of economic stagnation in the 1990s.

GDP is the total value of goods and services produced domestically. Real GDP figures are adjusted for price and seasonal variations. (dpa)