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 The upturn in capital spending - long a weak spot in Japan - could
raise hopes the economy will have enough momentum to tide over an
expected slump following an April 1 sales tax hike, easing pressure
on the Bank of Japan for further stimulus to support growth.
Still, analysts also say the economy faces the risks in coming
quarters of consumer demand not bouncing back convincingly after the
sales tax increase and exports staying weak.
"Corporate earnings have been improving and some facilities have
been ageing, so some firms felt they could not delay capital
expenditure any longer," said Norio Miyagawa, a senior economist at
Mizuho Securities Research & Consulting Co.
"Nonmanufacturers are more confident about the economy. Capex will
continue to grow, but without investment from manufacturers the pace
will be gradual."
Gross domestic product in the world's third-biggest economy rose at
an annualized rate of 5.9 percent in the January-March period,
government data showed on Thursday, as consumers rushed to buy
before the sales tax increase to 8 percent from 5 percent.
The result handily beat expectations of 4.2 percent growth in a
Reuters poll of economists and marked the fastest expansion since
the third quarter of 2011, when the country was recovering from a
devastating earthquake and nuclear disaster.
Capital spending rose 4.9 percent on the quarter, more than double
the median estimate for 2.1 percent growth and the fastest expansion
since October-December 2011, as companies used increased profits to
invest in factories and equipment.
A Cabinet Office official cited spending by firms to upgrade their
Windows operating systems and strong demand for construction
machinery.
The capital spending figure could be encouraging for Prime Minister
Shinzo Abe, who is keen for Japan Inc to spend more of its cash pile
worth over 200 trillion yen ($2 trillion) and raise wages to help
drive a sustainable economic recovery.
TEMPORARY PULLBACK
On a quarter-on-quarter basis, Japan's economy expanded 1.5 percent,
more than the median estimate for 1.0 percent growth. It was the
sixth consecutive quarter of expansion.
Private consumption, which makes up about 60 percent of the economy,
rose 2.1 percent from the previous quarter. That matched a high last
seen in the first quarter of 1997, just before the last increase in
the sales tax.
Analysts and policymakers expect the economy to slump temporarily in
the current quarter due to a pullback in consumer spending after the
sales tax rise, before returning to moderate growth in the following
quarters.
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"We expect the economy will contract at an annualized rate of around
5 percent for April-June but will likely grow around the 2 percent
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."
Economy Minister Akira Amari said on Thursday that the weakness in
consumption after the tax rise was within expectations and
temporary, adding that he hoped spending would recover as the job
market improves.
Meanwhile, BOJ Governor Haruhiko Kuroda said companies were making
progress passing on the cost of the tax rise to consumers.
Kuroda has repeatedly expressed confidence that the economy can
withstand the impact from the tax rise and is on track to meet the
central bank's 2 percent inflation target, easing speculation that
the BOJ may need to launch additional easing.
Still, some analysts have said that if exports remain feeble, the
BOJ may be forced as soon as July to expand stimulus by ramping up
its purchases of government bonds and other assets.
The GDP data showed that external demand shaved off 0.3 percentage
point from quarterly growth, the third straight quarter of
subtraction for the traditionally export-reliant economy. ($1 =
101.8050 Japanese Yen)
(Additional reporting by Kaori Kaneko; Editing by Chris Gallagher)
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