Japan's economy shows recovery signs in boost for Abe

Rupert Wingfield-Hayes on Japan's latest growth data

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Japan's economy, the third largest in the world, expanded at its quickest pace in a year, showing signs of an economic recovery.

Gross domestic product grew 0.9% in the three months to March compared to the previous quarter, indicating an annualised rate of 3.5%.

Japan grew at a rate of 1% at the end of 2012 as it emerged from a recession.

Analysts said it was a good report card for Prime Minister Shinzo Abe's aggressive stimulus measures.

"The Japanese economy is on the right track to recovery," said Hideki Matsumura, from the Japan Research Institute.

He cited a jump in individual spending on the back of a rally in Japanese stocks, as well as recovering exports, as the main reasons.

"The economy is expected to grow further for now thanks to the impact of Abenomics," Mr Matsumura added, referring to the name given to Mr Abe's attempt to stimulate Japan's stagnant economy with big government spending and aggressive central bank monetary easing.

Exporter boost

The policy shift is aimed at beating deflation, which Japan's economy has been suffering for almost two decades. Falling prices deter business and consumers from spending as they tend to hold out for a better deal.

The central bank has therefore pumped trillions of yen into the money supply, pushing down the currency's value.

That has helped exporters, making Japanese firm more competitive in overseas markets and increasing the value of their repatriated profits.

The yen has lost about one quarter of its value since November last year, and that has also lead to a huge rally in Japanese stocks as investors rush to take advantage of bigger earnings potential for companies.

The main Nikkei 225 index has risen 45% this year.

A growth rate of 3.5% would mean Japan is outpacing the US, which expanded 2.5% in the January to March quarter, as well as the eurozone, which contracted 0.9%.

However some analysts were more cautious, questioning whether the recovery could be sustained.

They pointed at company spending, which fell 0.7% in the three months despite expectations of an increase.

Some analysts said it was a sign that despite improved business sentiment Japanese companies were still hesitant to boost investment.

Convincing companies to spend is a key part of Mr Abe's plan to pull the country out of deflation.

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