Japan stays ahead of China as world second largest economy

Japan's economy grew by a better than expected 1.1% in the final quarter of last year, although it contracted by over 5% during the whole of 2009.

The figures mean Japan remains the world's second biggest economy behind the US, although China is drawing level and is expected to overtake soon.

China grew at a pace of 8.7% last year and is coming close to unseating Japan from its 40 year position in the number two spot.

Japan's return to growth has been led by exports, particularly to China which is now its largest overseas market. However, consumer spending remains weak and has been propped up by government stimulus measures.

A number of multi-managers and advisers have started upping their weighting to Japan in recent months buoyed by corporate restructuring, improving valuations, constructive government policies and a weakening of the yen. They also recognise Japan is in pole position to benefit from rapid Asian growth.