TOKYO - The yen rose against the euro and the dollar in Asian trade on Wednesday after the Japanese economy shrank at a slower pace than expected in the first quarter.

The dollar fell to 95.50 yen in Tokyo afternoon trade, down from 95.97 yen in New York late on Tuesday. The euro eased to 129.86 yen from 130.88 and to 1.3592 dollars from 1.3634.

Japan's gross domestic product (GDP) contracted 4.0 per cent in the three months to March compared with the previous quarter, logging an annualised drop of 15.2 per cent, official data showed.

It was the worst performance in the post-World War II era, but still beat the average market forecast for a 16-per cent annualised drop, providing speculators with an excuse to take profits, dealers said.

'The yen is being bought as the GDP figure was not as bad as the market expected,' said Marito Ueda, currency dealer at FX Prime.

'But that doesn't mean they are truly encouraged to buy the yen, as there are concerns over the stability of Japan's politics ahead,' he said.

Japan faces a general election by September at the latest and the two main political parties are in a close race for the leadership.

'There's also confidence among market participants that the worst period of the US economy is over. The eurozone and British economies are the most worrying,' Ueda said.

The euro rallied overnight in London and New York, lifted by an improving outlook for the German economy. But Ueda said European Central Bank president Jean-Claude Trichet's image as 'an inflation fighter' was a cause for concern for the eurozone economy.

Some critics say the ECB was too slow to reduce interest rates to spur growth.

Against Asian currencies, the dollar rose to 1.4644 Singapore dollars, from 1.4634 a day earlier, to 1,251.10 South Korean won from 1,243.90, to 10,370 Indonesian rupiah from 10,335 and to 34.45 Thai baht from 34.41.

At the same time it fell to 47.30 Philippine pesos from 47.38 and to 32.86 Taiwan dollars from 32.89.