Japan's economy bounced back in the first quarter from a year-end lull, powering ahead of other major industrial nations thanks to rebuilding of the tsunami-battered northeast, solid private spending and some improvement in exports.
The world's third-largest economy grew 1.0 per cent in the January-March quarter, just above a median forecast of 0.9 percent. A 0.2-per-cent contraction in the economy reported for the final three months of 2011 was revised up to flat in the government data released on Thursday.
The figures underlined expectations that growth would slow down during the rest of the year, partly as the impact of the rebuilding effort fades. They also did little to alter the view that the Bank of Japan will leave policy settings unchanged at a meeting next week, having eased last month.
"Consumer spending and public investment are what drove the economy, with auto demand stirred by government subsidies and investment helped by extra budgets after the earthquake," said Yoshimasa Maruyama, chief economist at Itochu Economic Research Institute.
"So, with government policies behind the quarterly growth, we can't say this is a reflection of real strength in the Japanese economy."
The first-quarter rise in gross domestic product translated into an annualized rate of growth of 4.1 per cent, stronger than 3.5 per cent expected by analysts.
That pace exceeds annualized growth of 2.2 per cent in the United States in the same quarter, and outperformed European heavyweights Germany, Britain, France and Italy.
The earthquake and tsunami stalled growth for the full financial year to the end of March 2012 after the economy had expanded 3.2 per cent a year earlier. A Reuters poll predicted a 2.0 per cent rebound in growth in the current financial year.
Private consumption, which makes up about 60 per cent of economic activity, rose 1.1 per cent, higher than an expected 0.8 per cent, helped by government subsidies on sales of fuel-efficient cars.
It contributed 0.7 percentage point to the quarter's growth, while public investment, which would cover the post-tsunami rebuilding effort, added 0.3 percentage point to the expansion.
A fall in the yen in the first quarter compared with the fourth quarter and a pick-up in overseas demand saw exports contribute 0.1 percentage point, after taking away 0.7 percentage point from growth in the previous quarter.
But the yen's longer-term rise and global uncertainty because of Europe's debt turmoil could weigh on Japan's exports, a factor keeping policy makers jittery.
"I'm closely watching the situation in Europe as it sways foreign exchange market moves. We'll take bold steps against excessive foreign exchange moves," Economics Minister Motohisa Furukawa told reporters.
Economists expect the first quarter to mark the peak of growth in 2012. They produced median growth forecasts of 0.5 per cent for the second and third quarters and 0.4 per cent for the fourth quarter, projecting a slowdown as the effect of rebuilding fades.
"Consumer spending is proving robust, but the key to sustainability for the economic recovery is whether or not exports regain strength," said Takeshi Minami, chief economist, at Norinchukin Research Institute.
In fact, the Markit/JMMA purchasing managers' index for April suggested exports may cool. The PMI showed the manufacturing sector expanded in April from March, but that new export orders fell.
Japan is also struggling to beat chronic deflation that prompts consumers to delay purchases, although price falls as measured by the GDP deflator eased in the first quarter thanks to higher fresh food prices.
Prime Minister Yoshihiko Noda kept up pressure on the BOJ for additional monetary stimulus, saying he hopes the central bank continues to take bold action when necessary to beat deflation.
Improvements in private consumption, output and exports nevertheless will cause the government to consider upgrading its economic assessment in a monthly report for May, due out on Friday, the Asahi newspaper said.