While growth in the world's third largest economy, Japan, surpassed expectations in the first quarter, expanding at its fastest pace in a year, an important pillar of growth was missing: revival in capital spending.
Japan's economy grew 0.9 percent in the first quarter of 2013 from the previous three months - above forecasts for 0.7 percent growth - helped by robust consumption growth and a pick-up in exports.
However, the improvement in export demand has failed to translate into investment, with capital expenditure (capex) falling 0.7 percent - the fifth straight quarter of declines - compared with estimates for a rise of 0.7 percent.
"The capex figure is a concern. Core machinery orders - a strong leading indicator - have been down in the first quarter versus the fourth quarter. And so I think capex spending is going to continue to be a drag despite the improvement in corporate profits," Izumi Devalier, Japan economist at HSBC told CNBC Asia's "Squawk Box" on Thursday.
(Read More: Why Weak Yen Remains Wild Card for Japan's Growth)
Capital spending, which accounts for around 15 percent of the country's gross domestic product (GDP), is an important indicator of business confidence.
"Companies are still cautious about ramping up investment and you really need to see a higher level of export growth that pushes companies to invest," she said, highlighting the importance of the "third arrow" of "Abenomics" - structural reforms to counter demographic headwinds and raise productivity - to improve the domestic corporate environment and encourage spending.