Japan's Economy Grew 0.8% in Quarter, Meeting Expectations
Japan's economy expanded by 0.8% in January-March from the previous quarter, revised data showed on Monday, faster than the preliminary reading of 0.6% growth and matching market
An upward revision in capital expenditure boosted the overall growth, signaling that the corporate sector continues to underpin a solid economic recovery, and reinforcing expectations of a Bank of Japan rate hike in August.
On an annualized basis, gross domestic product (GDP) grew 3.3%, up from a preliminary reading of a 2.4% rise and slightly higher than economists' consensus forecast for a revision to 3.1%.
"Overall, the data confirmed the firmness of capital spending," said Takumi Tsunoda, senior economist at Shinkin Central Bank Research.
Financial markets reacted little as the figures were mostly in line with economists' forecasts. Still, the upbeat data is likely to bode well for the BOJ in calling for further rate hikes.
The data also indicates that Japan's economic growth has now outperformed the United States and the euro zone for two straight quarters.
Largely behind the upward revision was capital spending, which was marked up to a 0.3% increase from a preliminary 0.9% fall. That was slightly smaller than the consensus forecast of a revision to a 0.5% rise.
"When the preliminary data showed a fall in capital spending, people had worried about the outlook for capital spending. But this data confirmed that capital spending remained firm," said Yoshiki Shinke, economist at Dai-ichi Life Research.
Soft capital spending had been blamed for the slowdown in preliminary January-March GDP growth from the previous quarter's 1.2% gain.
But economists had expected the GDP figures to be revised up after a Ministry of Finance survey released last week showed that corporate capital spending in January-March rose more than expected from a year earlier to a record high.
The revised GDP data also showed personal consumption, which makes up about 55% of the economy, rose 0.8% from the previous quarter, compared with an initial estimate of a 0.9% rise.
"If there are risks for the economy in the outlook, how private consumption will play out in April-June and July-September is one," said Kiichi Murashima, economist at Nikko Citigroup. Consumption could lose steam especially in July-September after the scheduled changes in taxes," he said, referring to a planned increase in residence tax in June.
A slump in consumption in the middle of last year was a key reason for the Bank of Japan's decision to hold off on raising rates in January, before raising them by a quarter percentage point to a decade-high 0.50% in February.
The central bank is widely expected to keep rates on hold at its two-day policy meeting that ends on Friday but it has said it will raise rates gradually to keep on top of inflation.
Many analysts expect the next rate rise to come sometime in the July-September quarter.
Japan is currently enjoying its longest period of economic expansion in the postwar era, albeit at a slower pace than previous booms, thanks to solid exports and capital spending.