Japan's economy grows faster than expected

The economy expanded 0.6% in the period compared to the previous quarter, marking its second consecutive quarter of growth.

The result was far better than the 0.4% analysts had expected.

On an annualised basis, the economy grew 2.4% in the period against forecasts of 1.5%.

Analysts said the first quarter growth rate was "very positive".

"The recovery seems to be well on track," Tony Nash, chief economist at Complete Intelligence, told the BBC. 

"This must bring a smile to Prime Minister Abe's face and is a vindication that his economic policies are moving things in the right direction."

The country came out of recession in the fourth quarter of last year.

Headwinds

Japan relies on domestic consumption for about 60% of its economy, but it has been recovering from a sales tax hike which has dampened spending.

Private consumption and capital spending were both up 0.4% in the quarter, but capital spending was expected to rise by 0.8%.

 

Capital Economics analyst Marcel Thieliant said in a note that the acceleration in economic growth for the period "was mostly due to a jump in inventories".

"And a range of indicators point to a slowdown in the second quarter.

"Industrial production in March was 4% below its January peak, and the drop in the manufacturing PMI (Purchasing Manager's Index) to a multi-month low in April suggests that conditions are unlikely to improve quickly," he added.

Other headwinds Japan's economy has been facing include wages, which have remained stagnant for several years, together with a weaker yen, which makes imported goods more expensive for consumers on the home front.

On the upside however, the weaker yen does give a boost to the country's big exporters, like Toyota, because it makes their goods cheaper to buy overseas. It also helps their bottom line when they repatriate money made from overseas operations.