Japanese growth overtakes projections, as firms boost investment

Japan's economy registered a much faster pace of expansion than what was initially expected over January to March, as companies boosted capital investment underscoring the central bank's view that recovery from last year's recession was gaining momentum.

The economy expanded an annualised 3.9 per cent in the first three months of this year, Cabinet Office data showed today, comfortably outpacing a preliminary estimate of a 2.4 per cent gain, and topping a median market estimate for 2.7 per cent growth.

"This is a pretty positive figure and shows the recovery is picking up pace," said Takeshi Minami, chief economist at Norinchukin Research Institute, Reuters reported.

He added, non-manufacturers were boosting spending on expectations that private consumption would recover, so this should serve as a key driver of growth.

Capital spending was up 2.7 per cent from the previous quarter, much higher than a preliminary estimate of 0.4 per cent growth and bigger than a 2.3 per cent expansion projected in a Reuters poll.

In a bid to leverage the weak yen, a number of Japanese manufacturers were in the process of shifting production back to Japan from China and elsewhere.

Panasonic had pulled back some production of room air-conditioners while Canon had repatriated some high-end copiers output.

However some economists warn that the recovery could be short-lived.

The upbeat data comes as good news for Tokyo's efforts to boost the economy, but household spending continued to be weak as the Bank of Japan tried hard to push up prices in a bid to end decades of deflation.

Even with wage hikes at big firms and a tighter labour market, consumers remained sceptical about spending on consumer goods after Japan bumped up sales taxes last year to help pay a huge national debt.

The tax increase hit consumer spending and pushed the economy into a brief recession. Japan came out of the red in the last three months of 2014 with today's surprise figures coming as much welcome news.

"Capital spending is the last piece of the puzzle, with exports and consumption showing signs of recovery," said Atsushi Takeda, an economist at Itochu Corp, AFP reported.

He added, a sustainable economic recovery was starting.