Economists warn Japan’s recovery in first quarter could be short-lived

TOKYO: Japan posted strongerthan-expected growth in the first quarter as a pickup in capital spending powered the world’s number three economy, but some economists warned that the recovery could be short-lived.

The 1 per cent expansion in January-March — or 3.9 per cent on an annualised basis — was sharply up from an initial estimate of 0.6 per cent growth, according to the Cabinet Office figures.

The upbeat data is good news for Tokyo’s efforts to boost the economy, but household spending remains stubbornly weak as the Bank of Japan struggles to push up prices in a bid to end decades of deflation.

Despite wage rises at big firms and a tighter labour market, convincing people to splash out on consumer goods has been a struggle after Japan raised sales taxes last year to help pay down a huge national debt.

The rise hammered consumer spending and pushed the economy into a brief recession. Japan limped out of the red in the last three months of 2014 with Monday’s surprise figures offering some hope for better times ahead.

“The figures show the Japanese economy is gradually heading for recovery,” said Credit Suisse economist Takeshi Saito. Corporate investment rose 2.7 perc ent from the previous quarter, well above an initial 0.4 per cent expansion.

Growth figures were in line with the Bank of Japan’s assessment that the economy was on the upswing, and may delay any further central bank stimulus. “

At the moment, (the Bank of Japan) is less likely to introduce another round of monetary easing,” Saito said.

However, bank chief Haruhiko Kuroda has been forced to push back a timeline for hitting a 2 per cent inflation target — a corner- stone of Prime Minister Shinzo Abe’s plan to kickstart the deflation-plagued economy — although he insists that healthy price rises are around the corner.

Sharp slowdown

In Asian forex trading, the dollar was slightly lower at ¥125.44, against ¥125.56 on Friday in New York where the United States currency climbed briefly to a 13-year high of ¥125.86.

The data on Monday contrasted with revised US figures that showed the world’s top economy contracted an annualised 0.7 per cent in the first three months of the year, with the impact of a ports slowdown and cautious consumer spending worse than originally estimated.

The US is a major market for Japanese exporters and despite the apparent strength of Monday’s figures, they also raised a red flag as firms’ inventories grew from three months earlier.