Japan revises upward growth estimate for Jan-Mar, to 1.9 pct

TOKYO – Japan’s economy expanded at a 1.9 per cent annual pace in January-March, helped by sustained consumer demand, according to revised data issued Wednesday.

The government earlier estimated the world’s third-largest economy grew at annualized rate of 1.7 per cent. It said the improvement was mainly due to a better-than-expected level of corporate investment.

The quarterly rate of growth was raised to 0.5 per cent from 0.4 per cent.

The latest data showed private consumption, the biggest contributor to growth, rose 0.6 per cent in January-March, compared with an earlier estimate of 0.5 per cent.

Economists expect the economy to slow in the current quarter, and Prime Minister Shinzo Abe, facing a parliamentary election in July, judged the situation bleak enough to justify pushing back a planned April 2017 increase in the sales tax by two and a half years, to October 2019.

“While an improvement in business investment is positive for the economy, the strength of the Japanese yen and weak foreign demand may lead businesses to be more cautious about spending,” Bernard Aw of IG said in a commentary.

“Moreover, the relatively flat output compared to a year ago points toward an economy which is not doing well,” he said.

Abe has sought to spur growth by injecting massive sums of money into the economy through central bank asset purchases and government spending, with mixed success.

Inflation remains far from the official target of 2 per cent, partly due to weak oil prices and partly due to sluggish domestic demand. A recent strengthening in the value of the yen against the dollar is meanwhile eroding corporate profits of the many Japanese companies whose business is mainly done overseas.

Such underlying weaknesses mean the Bank of Japan will likely need to expand its asset purchases further in coming months, said Marcel Thieliant of Capital Economics.

“For now, policymakers are facing a number of headwinds,” he said in a note.

The government is due to propose up to 10 trillion yen ($93 billion) in extra stimulus spending in the coming months.