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Japan Q1 2014 growth hits over two-year high

May 15, 2014

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, according to the Reuters.

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.

A Cabinet Office official cited spending by firms to upgrade their Windows operating systems and strong demand for construction machinery.

The capital spending figure could be encouraging for Prime Minister Shinzo Abe, who is keen for Japan Inc to spend more of its cash pile worth over 200 trillion yen ($2 trillion) and raise wages to help drive a sustainable economic recovery.

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Source: AKIpress News Agency (Kyrgyz Republic)

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