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Japan Records Economic Growth in First Quarter of 2017

Japan Records Economic Growth in First Quarter of 2017

Japan's economy picked up speed in the first three months of 2017, extending its most recent stretch of growth under Prime Minister Shinzo Abe to five quarters, the longest expansion in Japan since 2006.

According to MarketWatch, stronger global demand, especially for tech-related items, and an improvement in household spending helped gross domestic product beat forecasts and rise 2.2% on an annualized basis from the previous three months, according to preliminary figures released Thursday.

The unbroken expansion offers hope that Japan is back on a path of stable-if-unspectacular growth under Mr. Abe. For more than four years Mr. Abe has been trying to end decades of sluggish growth and deflation through his Abenomics policy package of government spending and easy monetary policy.

Many economists expect the gains to continue during the current quarter.

"The figures show that clearly the economy is recovering," said Yoshitaka Shinke of Dai-ichi Life Research Institute. Exports are likely to stay strong and business investment is likely to increase reflecting rising corporate profits, he said.

Despite fresh signs of improvement, economy minister Nobuteru Ishihara warned that Japan has yet to escape deflation. 

While Japan's real GDP rose, the economy shrank 0.1% in nominal terms. Companies are still hesitant to raise prices of items they sell even though a weaker yen and rising fuel costs are forcing them to pay more for imported materials, a government official said.

Japan continued to rely on exports for growth in the first quarter. Exports rose 8.9% for the third straight quarter of increase. Shipments to China have generally been rising and global smartphone demand has boosted exports of components.

Household spending, which accounts for roughly 60% of the GDP, rose 1.4% as Japanese consumers spent more on durable goods like cellphones and clothes. That was the fifth consecutive quarter of increase though rises have been modest in the past. In October-December, it inched up only 0.1% as high vegetable prices put off consumers.

Improving household spending is key for the economy to grow under Mr. Abe, whose policies aim at a virtuous cycle of boosting wages, spending and prices.

Policy makers say workers need significant pay rises to get consumers spending and support a sustained economic recovery. Wages increases continue to be modest in recent years and in March, overall wages fell from a year earlier, the first decline in 10 months.

Business investment slowed down sharply, suggesting that companies may still be taking a cautious stance on Japan's economic outlook. Capital spending rose 0.9% after surging 7.6% in the previous quarter. Still, some economists played down the deceleration in investment as the aftermath of a surge in the previous quarter. Many of them expect investment to improve in the coming quarters.

Risks to the outlook include a possible rise in protectionism under the trade policies of the U.S, MarketWatch reports.

Donald Trump frequently denounced Japan on trade issues during his campaign for the White House. A global economic slowdown would also affect Japan as well, economists say.

In January-March, Japan outpaced the economic growth of the U.S., which grew at an annualized rate of 0.7%. China, the world's second-largest economy, reported 6.9% growth in the first quarter compared with a year earlier.

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