Japan economy expands at 2.2 percent annual pace in Jan-Mar

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Japan's economy grew an annualized real 2.2 percent in the January-March quarter, marking the fifth successive quarter of expansion, the government said Thursday.

Driven by robust exports and firming domestic consumption, Japan's economy expanded an annualized 2.2 per cent in January-March, exceeding a median market forecast for a 1.7 per cent rise to post the fastest growth rate since January-March 2016, Cabinet Office data showed.

The latest reading matched market expectations.

Japan's prospects have been improving on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm.

But consumer spending remains tepid and efforts to conquer on-off deflation have largely fallen flat despite years of monetary easing by the central bank.

On a quarter-on-quarter basis, GDP rose 0.5 percent, against a 0.4 percent rise expected by economists.

A string of short-term leaders followed before Abe swept back to power in late 2012 on a pledge to reignite Japan's once-booming economy with a plan dubbed Abenomics.

But critics have been increasingly doubtful about the plan's success in cementing a lasting recovery, as heavily-indebted Japan grapples with low birthrates and a shrinking labour force. "However we expect a slowdown in the second half of the year, ' he said".

Consumption has been a persistent weakness for Japan in recent years (especially after the two big rises in the country's sales tax) and the pick-up will encourage the Bank of Japan and the government that the highly stimulatory policies since 2013-14 are at last starting to have a sustained impact.

Exporters have been helped by the recent dip in the yen against the U.S. dollar.

She noted that much of the improvement was export-driven, but it wasn't clear whether that would continue, particularly as demand for autos in the USA appeared to be dropping.

"The crucial question is how far capital expenditure will be increased in the meantime", he said in a commentary released ahead of the GDP data.

Economists say that lagging growth in wages is hindering the recovery.

"Unless this changes, the chances of inflation settling at two per cent or higher are slim", it added.

"The Japanese economy probably won't grow dramatically, but it's not about to shrink either".

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