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Drop in export demand hits Japanese economy

Japan's economy shrank 2.3% in the fourth quarter as manufacturers were battered by the strong yen, weak export demand amid the European debt crisis and flooding in Thailand.

A drop in government spending during the quarter also contributed to the year-on-year decline reported yesterday.

The world's third largest economy should get a boost once that rebuilding money kicks in, but the outlook for the country's vital exporters remains unclear in the current climate.