Japan's recovery from the recession was uneven, with quarters of rapid growth followed by quarters of stagnation or even contraction, until the tsunami in early 2011 caused output to contract further.  The recovery was led by a sharp increase in exports, while domestic demand increased only modestly, and deflationary pressures again came to bear in the Japanese economy.

While the tsunami had a detrimental impact upon output in 2011Q1 the public and private sector investment that is required to replace the damaged industry is likely to prove beneficial to the economy in the medium-term.  Strong increases in global demand (including other parts of Asia) will also support GDP growth, and as such after growth of ½% in 2011 we expect growth to accelerate to 2¼% in 2012.