Japan's Economy Boosted by Consumption, Exports

Shubiya district, Tokyo, Japan
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Shubiya district, Tokyo, Japan

Japan's economy grew at a faster than expected pace in the first quarter, led by robust private consumption and a rebound in exports on the back of the government's radical policies to reflate the economy.

Real gross domestic product (GDP) grew 0.9 percent, compared to a Reuters consensus of 0.7 percent. This brings GDP growth on an annualized basis to 3.5 percent, compared to 2.8 percent markets were expecting.

(Read More: Why Weak Yen Remains Wild Card for Japan's Growth)

Private consumption, which accounts for 60 percent of the economy, rose 0.9 percent from the year ago period and at the quickest pace since July-September of last year.

Exports growth logged the first positive figure since the first quarter of 2012, up 3.8 percent from a year earlier, helped by a weaker yen, which has fallen 18 percent against the dollar this year.

However, capital expenditure fell for a fifth straight quarter, down 0.7 percent from a year earlier, as doubts arose about the limitations of Prime Minister Shinzo Abe's radical economic policies on the corporate sector.

(Read More: Capital Flight From Japan: Has the Yen's Downfall Just Begun?)

"Capital expenditure is going to continue be a drag despite the improvement in corporate profits. 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," said Izumi Devalier, Japan economist at HSBC.

"Without the third arrow of Abenomics, which is the growth strategies and structural reforms, the corporate environmental is still very restrictive," she added.

-- Reuters contributed to this report.