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Much of the growth in the first quarter of the year came from public demand, as in government spending on reconstruction from Japan's March 2011 tsunami disaster and other public works. Private demand has been fueled by a recovery in housing investment, which has picked up sharply as purchasers rush to beat expected increases in sales taxes in the coming two years. The tax increase, while needed to help reduce Japan's massive public debt, will amount to a "major fiscal tightening," Capital Economics economist Julian Jessop said in a commentary before the GDP data was released. "Overall, 'Abenomics' surely represents the right mix of policies to tackle Japan's problems," he said, noting that the government faces a challenge in carrying out fiscal and structural reforms
-- such as changes in labor, education and tax policies and administrative deregulation
-- to help improve Japan's long-term competitiveness and adapt to its aging and shrinking population. In the near term, if companies do not boost wages to help improve household purchasing power, inflationary policies could just discourage consumer spending, he and other economists warn. "On these points at least, the jury is still out," he said.
[Associated
Press;
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