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* Rising inventories bode ill for Japanese economy
* Revised GDP shrinks Q4 contraction but still worst since '74
* Japan economy on course of longest slump since WW2
By Tetsushi Kajimoto
TOKYO, March 12 (Reuters) - A rise in inventories made Japan's fourth-quarter slump slightly less severe than initially reported, but further darkened the gloomy outlook for the world's No. 2 economy by highlighting tumbling demand for Japanese goods.
Revised data showed the economy shrank 3.2 percent in the final quarter of 2008, slightly less than the preliminary 3.3 percent figure, but still marking the deepest contraction since the oil crisis of 1974.
Inventories more than doubled during the quarter to 4.6 trillion yen ($47.6 billion) and their contribution to the overall output was revised slightly upwards compared with last month's preliminary data.
But the growing pile of unsold goods signalled more production and jobs cutbacks in months ahead and a deepening of what is already shaping up as Japan's longest and deepest recession since World War Two.
"Demand is shrinking much faster than output reduction, which has caused an unintended increase of inventory," said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute.
"But that will become more of a drag on the economy as it adds inventory adjustment pressures, leading to a further reduction in output."
Prime Minister Taro Aso also said there was nothing to cheer about.
"The revised figures looked better, but the substance was not good, as the ratio of stock to shipments has changed... A rise in inventories is not necessarily good for management," he told a budget committee session at the upper house of parliament.
The revised data showed fourth-quarter economic output plunged at an annualised rate of 12.1 percent, below an earlier estimate of 12.7 percent, but still a much steeper decline that those suffered by other, less export-dependent, major economies.
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Economists polled by Reuters on Wednesday predicted that the economy would shrink 2.5 percent this quarter and 0.4 percent in April-June, which would mean an unprecedented five straight quarters of contraction. [ECILT/JP]
DEEPER CONTRACTION?
After Thursday's data, some analysts said an even deeper slump was possible.
"Now we are starting to think the contraction in January-March could be bigger than October-December," said Takahide Kiuchi, chief economist at Nomura Securities.
Markets showed little reaction to the data. The yen
Many economists expect the economy to bottom out some time this year, helped by a possible recovery in China and stimulus packages in the United States and Japan.
Others say the malaise could well continue beyond this year.
"We are quite pessimistic and think the Japanese economy will bottom out in 2011. We could be looking at three straight years of contraction," said Seiji Adachi, senior economist at Deutsche Securities.
Japan has long relied on exports and capital spending to make up for subdued consumer spending and the collapse in demand left it particularly exposed to the global downturn.
A plunge in exports shaved 3.0 percentage points off GDP in the fourth quarter, in line with the initial estimate, while corporate capital spending slumped 5.4 percent. (Editing by Tomasz Janowski) ($1=96.74 Yen)