Japan first-quarter growth hits over two-year high

Thu May 15, 2014 1:06am EDT
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By Stanley White and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's economy clocked its fastest pace of growth in more than two years in the first quarter as consumer spending jumped and business investment turned surprisingly strong in a sign of confidence in the prospects for future growth.

The upturn in capital spending - long a weak spot in Japan - could raise hopes the economy will have enough momentum to tide over an expected slump following an April 1 sales tax hike, easing pressure on the Bank of Japan for further stimulus to support growth.

Still, analysts also say the economy faces the risks in coming quarters of consumer demand not bouncing back convincingly after the sales tax increase and exports staying weak.

"Corporate earnings have been improving and some facilities have been ageing, so some firms felt they could not delay capital expenditure any longer," said Norio Miyagawa, a senior economist at Mizuho Securities Research & Consulting Co.

"Nonmanufacturers are more confident about the economy. Capex will continue to grow, but without investment from manufacturers the pace will be gradual."

Gross domestic product in the world's third-biggest economy rose at an annualized rate of 5.9 percent in the January-March period, government data showed on Thursday, as consumers rushed to buy before the sales tax increase to 8 percent from 5 percent.

The result handily beat expectations of 4.2 percent growth in a Reuters poll of economists and marked the fastest expansion since the third quarter of 2011, when the country was recovering from a devastating earthquake and nuclear disaster.

Capital spending rose 4.9 percent on the quarter, more than double the median estimate for 2.1 percent growth and the fastest expansion since October-December 2011, as companies used increased profits to invest in factories and equipment.   Continued...

A man holding a mobile phone rides an escalator in Tokyo August 11, 2013. REUTERS/Yuya Shino