Japan’s economy grew at a faster-than-expected 2.4 percent annual pace in the January-March quarter, suggesting a recovery is gaining traction, despite persisting weakness in corporate and household spending.
About 2 percentage points of the first quarter’s growth reflected an increase in inventories stemming from the plunge in demand that followed a sales tax increase in April last year. An increase of 7.5 percent in housing investment also drove growth.
Overall trends for the economy are positive, Tokyo-based JPMorgan Chase & Co economist Masamichi Adachi said.
Lower costs for oil and gas imports thanks to the plunge in crude oil prices as one big plus, he said.
“We see a huge income shift from the oil exporters to the importers like Japan,” he said.
A windfall for corporate profits from the yen’s depreciation against other currencies is also helping.
“People’s confidence is getting a little better,” Adachi said.
However, there is still little sign of the kind of increase in consumer and business spending needed for a sustainable recovery, he said.
The data reduce the likelihood the Bank of Japan will opt to expand its lavish monetary stimulus at a policy meeting this week.
The 0.6 percent rise in GDP from the previous quarter was the second straight quarter of growth. Economists had mostly forecast growth for the first quarter at about 1.5 percent.
The news pushed share prices higher, lifting the Nikkei 225 index by 1 percent to 20,231.18.
The index recently breached the 20,000 level for the first time in 15 years, buoyed by strong corporate profits and from pension funds and other institutional investors rotating cash into shares from other asset classes.
Factors contributing to the recovery include a sharp rise in spending by foreign tourists, lured by the cheap yen. Housing investment also has revived as changes in regulations encourage demolition of older, unoccupied homes.
However, the increase in private sector inventories in the last quarter suggests persistent weakness in domestic demand. Exports also were a net drag on growth, while public investment plunged 5.5 percent.
“The keys to growth are the extent of the benefits from low oil prices and wage increases at large companies flowing into the broader economy,” said Harumi Taguchi, principal economist at IHS Global Insight in Tokyo.
“Additionally, the government needs to accelerate deregulation and structural reforms to support stronger private demand,” she said.
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