Japan's economy picks up speed on unexpected surge in capex

Mon Jun 9, 2014 3:18am EDT
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By Leika Kihara and Tetsushi Kajimoto

TOKYO (Reuters) - Japan's first quarter growth handily beat initial estimates on an unexpected surge in capital spending, fresh signs the world's third-biggest economy is in better shape to weather a hit to consumption from a sales tax hike.

Capital spending, long a weak link in the economy, is a key focus in Tokyo's campaign to engineer a revival after two decades of sub-par growth and grinding deflation.

"Companies don't tend to ramp up spending ahead of the sales tax hike, so the increase likely reflects improvements in corporate profits and diminishing slack," said Mitsumaru Kumagai, chief economist at Daiwa Institute of Research.

Japan's economy grew an annualized 6.7 percent in the first quarter, data showed on Monday, up sharply from an initial reading of a 5.9 percent rise, and confirmed the fastest pace of growth since July-September 2011. The data beat the median market forecast for GDP to rise 5.6 percent.

The upward revision was largely due to a recalculation in capital expenditure that took into account finance ministry data showing a solid increase in spending.

Adding to the optimism, current account data showed foreign visitors spent more money than Japanese traveling abroad for the first time in 44 years, boding well for Japanese companies in the retail and tourism industry.

In other encouraging news, Japanese consumer confidence rose for the first time in six months in May, further underscoring recent signs that the economic pain from the sales tax hike would be temporary. The service-sector sentiment index also edged up.

The tax, which was raised to 8 percent from 5 percent on April 1 to fix Japan's tattered finances, has caused distortions in data and raised worries about the outlook.   Continued...

A woman walks past a board promoting a bargain sale at a shopping district in Tokyo July 11, 2011.  REUTERS/Kim Kyung-Hoon