Japan’s economy grew easily beating expectations

Japan’s economy grew at an annualised rate of 1.7 per cent in the first quarter of 2016, easily beating expectations of a 0.3 per cent rise, in a big boost to the country’s beleaguered policymakers.

Rising gross domestic product reverses a contraction in the fourth quarter of 2015 and means Japan has avoided another technical recession, defined as two consecutive quarters of negative growth.

The faster than expected pace of growth suggests the Japanese economy is managing to shake off the effects of a slowdown in China and a stronger yen — at least for now — with domestic demand having more momentum than previously thought.

Robust growth data are likely to mean a smaller fiscal stimulus by the government of Prime Minister Shinzo Abe, which was poised to act if the data had been bad.

The data will give heart to the Bank of Japan — suggesting the economy is growing faster than its long-run trend of about 0.5 per cent — although it is unlikely to have much direct effect on monetary policy. The BoJ is still under pressure to ease because of the rising yen and the weakness of inflation.

Consumption contributed 1 percentage point to annualised growth, government consumption added 0.6 percentage points and trade chipped in 0.8 percentage points of growth. The stronger pace of consumption is particularly encouraging, suggesting higher wages are turning into spending at the shops.

Although the figures send a positive message about the economy, Japan’s initial GDP data are notoriously unreliable, and revisions often change the picture substantially.