Why one strong quarter won't save Japan's year

After upbeat Q1 GDP, what will BOJ do?
After upbeat Q1 GDP, what will BOJ do?   

Japan's economic growth strongly beat expectations in the first quarter, but it's largely getting a yawn or even forecast cuts from economists looking at the rest of the year.

"While we are encouraged by the better-than-expected report, there are a couple of things that take the shine off the apple," Tim Quinlan, an economist at Wells Fargo Securities, said in a note Wednesday.

For one: inventory growth, he said. That added 0.5 percentage point to non-annualized expansion, the data showed.

"When inventory accumulation is your engine for growth, you might be in for a short ride," he added, although he noted the increase came after three straight quarterly declines.

Read More Japan GDP: Consumers still pinching pennies

Surprising economists, Japan's gross domestic product (GDP) expanded an annualized 2.4 percent in the first quarter, compared with the previous quarter, beating the 1.5 percent print expected in a Reuters poll. But growth for the October-December quarter was revised down to 1.1 percent on-quarter from the previous 1.5 percent read.

Quinlan isn't alone in concerns on inventories.

"Businesses eventually will have to sell," Martin Schulz, senior economist at Fujitsu Research Institute, told CNBC. "That requires demand domestically, which is still slow… It requires the traditional export boost that they haven't done so far."

Food stalls near the Sensoji temple in Tokyo, Japan
Kiyoshi Ota | Bloomberg | Getty Images
Food stalls near the Sensoji temple in Tokyo, Japan

Schulz is also concerned that selling inventories more aggressively into markets might mean companies begin cutting prices again. That would run counter to the country's concerted efforts to break out of decades-long struggle with deflation.

He doesn't expect companies to begin raising wages in earnest until "well into next year," which could keep domestic demand slow until then.

Another factor curbing economists' enthusiasm might be that the on-quarter comparison is too flattering.

Read More Japan's downgrade: Why no one seems to care

"Despite the recovery in the last two quarters, the level of economic activity in the January-March quarter is still 1.4 percent below the level a year ago," Japan Macro Advisors said in a note Wednesday. "While we welcome the positive growth in the recent quarter, we cannot help but feel a sense of lost opportunity."

Some were so unimpressed by the higher-than-expected growth that they cut their expectations for the rest of the year.

Nomura now expects calendar 2015 GDP growth to come in at 0.7 percent, down from 1.2 percent previously, even though the first quarter beat its expectation for an on-quarter annualized decline.

"We expect growth in the second quarter to be held down by a temporary correction in production in the auto and steel sectors and drawdowns of some inventories," Nomura said in a note Wednesday. "With private-sector consumption, we expect momentum to be held back by only partial benefits from increases in base pay," which are likely from June-July, it said.

Others are sticking with a downbeat view.

"A range of indicators point to a slowdown in the second quarter," Marcel Thieliant, a Japan economist at Capital Economics, said in a note Wednesday. "Industrial production in March was 4 percent below its January peak, and the drop in the manufacturing PMI to a multi-month low in April suggests that conditions are unlikely to improve quickly."

He's sticking with a forecast for the country's GDP growth to come in right around zero this year.

There's another reason analysts aren't getting excited about that first-quarter growth: " For three straight years, we have seen a surge in first quarter growth only to be followed by disappointment in the subsequent quarter," Wells Fargo's Quinlan said.

—By CNBC.Com's Leslie Shaffer; Follow her on Twitter @LeslieShaffer1