Japan's economy, the world's second biggest, expanded at faster pace than originally estimated in the first quarter as consumers spent more amid signs of a broadening recovery.
Gross domestic product expanded at an annualized pace of 5 percent in the January-March quarter, revised up from 4.9 percent in a preliminary report last month, the government said Thursday.
The upward change surprised economists — who had forecast a downward revision — and underscores that recovery in Japan's economy has been gaining momentum.
Underpinning its growth are exports of cars, consumer electronics and other goods to a surging Asia and China, which is poised to overtake Japan's economy in size sometime this year. The robust overseas demand is leading to higher production, investment and profits at Japanese companies.
Masamichi Adachi, senior economist at JPMorgan Securities Japan, described the country's growth since the worst of the recession early last year as "impressively solid."
The annualized figure corresponds to quarterly growth of 1.2 percent, which is unchanged from initial estimates.
The updated calculations by the Cabinet Office revealed stronger consumer demand and higher spending on housing, combined with a milder decline in government investment. Corporate capital expenditures grew a less-than-expected 0.6 percent instead of 1 percent.
GDP represents the total value of a nation's goods and services.
The encouraging numbers, however, are tempered by persistent deflation and other negatives. Lower prices may boost individual purchasing power, but deflation is generally bad for an economy. It plagued Japan during its "Lost Decade" in the 1990s, hampering growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases.
A lackluster labor market — unemployment rose to 5 percent in March which is high by Japanese standards — and worries about potential global fallout from Europe's debt problems are also hanging over the economy.
Economists predict Japan's growth will slow in the months ahead as export demands cool and governments phase out stimulus measures.
Given Japan's limited trade volume with the European Union, potential stagnation in Europe is unlikely to pose a major direct threat to Japan, said Junko Nishioka, chief economist at RBS Securities Japan Ltd.
"However, we think the indirect influence via China will be the biggest risks for Japan's exporters, along with market fluctuation," she said in a note to clients.
New Japanese Prime Minister Naoto Kan is expected to sharpen the government's focus on the economy. Kan, a former finance minister, has cited the challenge of bolstering growth while reigning in the swelling national debt as among his most pressing tasks.
Heading up the economic effort in the new Cabinet is Kan's former Finance Ministry lieutenant Yoshihiko Noda, a fiscal hawk who favors financial discipline and is against heavy public spending or more borrowing.
Japan has the largest public debt among industrialized nations, at 218.6 percent of its gross domestic product in 2009, according to the International Monetary Fund.
Kan said he will also consider raising taxes, an issue he said previous governments have been too timid to face.
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