Japan Economic Recovery Makes Strides

Japan Economic Recovery Makes Strides

Japan's efforts to stimulate its economy after two so-called 'lost decades' are showing some encouraging early results.

Gross domestic product (GDP) rose 0.9% in the first quarter of the year - better than expected - translating into an annualised 3.5% growth which cemented a turnaround from six months of contraction in 2012.

The performance was the first hard evidence that new Prime Minister Shinzo Abe's sweeping reforms to generate activity were having some effect, despite continuing falls in corporate investment.

He returned to power in December, promising to jolt the economy out of its slumber with his "Abenomics" policy mix of unprecedented monetary stimulus, extra budget spending and promised pro-growth policies.

Hiroaki Muto, senior economist at Sumimoto Mitsui Asset Management in Tokyo said of the first quarter statistics: "Personal consumption was really strong and exports did better than expected. Stock gains and expectations for higher salaries are driving consumption now."

But economists said the key to more lasting improvement will be whether the benefits reaped by exporters from the rapid weakening of the yen will filter through to a broader economy, kicking off a virtuous cycle of more jobs, higher wages, profits and investment.

They see this as crucial if Abe's gamble is to pay dividends, with critics questioning the Bank of Japan's (BoJ) plan to flood the economy with money to the tune of $1.4tn (£920bn) in two years.

The BOJ's plan to double its government debt holdings has sent the yen sharply lower against the dollar and boosted share prices by 70% since last November.

Tokyo is banking on Japan's export-reliant economy kicking into high gear on the back of a cheap currency.

The yen's slide has recently been credited with helping Sony back into profit.