Japan's GDP revised sharply higher, grew 2.7% in the first quarter on robust spending
- Economists surveyed by Reuters had expected to see growth of 1.9%.
- Private non-residential investment, or capital spending, rose 1.4%, higher than initial government estimates of 0.9%.
- The resilience seen in the Japanese economy could be short-lived, Oxford Economics senior economist Norihiro Yamaguchi said.
Japan's economy grew an annualized 2.7% in the first quarter of the year, expanding further than earlier estimates of 1.6% made last month, government data showed Thursday.
Economists surveyed by Reuters had expected to see growth of 1.9%. The Japanese yen strengthened by 0.14% to 139.98 against the U.S. dollar shortly after the release, while the Nikkei 225 rose 0.17% and the Topix was up 0.2%. Quarter-on-quarter, the economy expanded by 0.7%, beating estimates by Reuters of 0.5%.
Private non-residential investment, or capital spending, rose 1.4% — higher than initial government estimates of 0.9%. Private demand rose by 1.2% and domestic demand rose by 1%, while exports of goods and services dropped 4.2%. Imports also fell 2.3%, revised government data showed.
The upside surprise for Japan's economic growth comes as stocks remain in focus after recently notching new three-decade highs thanks to a weak yen and plans for structural reforms.
Factory activity in the economy expanded for the first time since October 2022, a Purchasing Managers' Index from last week showed. The reading stood at 50.6, snapping a six-month streak of readings below the 50-mark that separates expansion and contraction.
That latest PMI print "highlights a decisive turnaround in manufacturing sector performance," pointing at a recovery in Japan's domestic economic conditions, Tim Moore, an economics director at S&P Global Market Intelligence, said in a research note.
This helped to lift client spending, which offset another month of subdued demand in key export markets, S&P Global said.
Focus on private spending
Private spending has also been in focus. Local media Kyodo reported Wednesday that the government plans to cut "crisis-mode spending," according to a draft of its latest full-year economic blueprint.
The blueprint also reiterated Prime Minister Fumio Kishida's plans to achieve economic growth alongside wage hikes as part of his drive to accelerate wealth redistribution, Kyodo reported.
It also included measures that aim to restore fiscal health, Kyodo reported, such as encouraging companies to offer higher wages and further invest in human resources.
The Bank of Japan's next two-day monetary policy meeting is scheduled for next week as the nation grapples with a high inflation rate, hitting 3.4% in April.
Gloomy outlook ahead
The resilience seen in the Japanese economy as global growth braces for a further slowing, as a result of central banks sharply raising interest rates, could be short-lived, Senior Economist Norihiro Yamaguchi of Oxford Economics said.
"[In] the coming months, probably the economy will maintain resilience because there is more room for pent-up demand and more businesses are seeing more opportunity for investment in this fiscal year," Yamaguchi told CNBC's "Squawk Box Asia."
But further headwinds are expected due to a delayed effect on external factors affecting the Japanese economy, he added.
"What is the gloomy outlook for the external environment, is the lagged impact from the past rate hikes from the United States and from Europe," he said, adding that "it will surely affect the exports later in this year and the first half of next year."
— CNBC's Lim Hui Jie contributed to this report