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In this Wednesday, May 14, 2014 photo, people walk along a pedestrian crossing in Tokyo. Preliminary data show Japan's economy grew at a 5.9 per cent annualized rate in the January-March quarter as companies and consumers stepped up buying ahead of an increase in the sales tax. (Shizuo Kambayashi/AP)
In this Wednesday, May 14, 2014 photo, people walk along a pedestrian crossing in Tokyo. Preliminary data show Japan's economy grew at a 5.9 per cent annualized rate in the January-March quarter as companies and consumers stepped up buying ahead of an increase in the sales tax. (Shizuo Kambayashi/AP)

Japan’s economy grows faster than in more than 2 years before tax hike Add to ...

Japan’s economy grew in the January-March quarter at the fastest pace in more than two years as consumers rushed to spend before a sales-tax hike and business investment rose in a sign of confidence in the prospects for future growth.

The 5.9 per cent annualized expansion in the first quarter handily beat expectations of 4.2 per cent growth in a Reuters poll of economists.

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It was the fastest expansion since 10.8 per cent annualized growth in the third quarter of 2011, when the country was recovering from a record earthquake and nuclear disaster.

Capital expenditure also rose at the fastest pace in more than two years, suggesting the economy could quickly recover from an expected slowdown in consumer spending after the tax hike as business investment tends to spur job creation and higher salaries.

“We expect the economy will contract at an annualized rate of around 5 per cent for April-June but will likely grow around the 2 per cent level for July-September,” said Taro Saito, senior economist at NLI Research Institute.

“The economy is expected to return to moderate growth after a temporary pullback, which is largely in line with the Bank of Japan’s scenario. It is hard to consider the BOJ will ease judging from an economic growth and price increase perspective.”

Japan’s economic growth blew past that of the United States, which expanded by an annualized 0.1 per cent in the same quarter as severe winter weather hurt business investment and exports in the world’s largest economy.

The data showed also that Japan’s economy expanded for a sixth consecutive quarter, which could ease worries about demand after the April 1 tax hike.

On a quarter-on-quarter basis, Japan’s economy grew 1.5 per cent in January-March, more than the median estimate for 1.0 per cent growth.

Private consumption, which makes up about 60 per cent of the economy, rose 2.1 per cent from the previous quarter, matching the median estimate.

That matched a high last seen in the first quarter of 1997, just before the last increase in the sales tax.

Capital spending – which had been a weak spot in the economic recovery – rose 4.9 per cent, more than double the median estimate for 2.1 per cent growth and the fastest expansion since October-December 2011 as companies used increased profits to invest in factories and equipment.

External demand shaved off 0.3 percentage point from quarterly growth, less than a 0.4 percentage point subtraction expected by economists.

Some analysts say that if exports remain feeble, the Bank of Japan may be forced as soon as July to expand its stimulus by ramping up its purchases of government bonds and other assets.

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