Japan climbs out of recession

Robust consumer spending has supported the economy

The Japanese economy has emerged from recession, with its highest growth figures for two years.

We have probably seen the strongest GDP numbers that we will see this year

Fiachra Maccana
WestLB Panmure

Gross domestic product grew at a rapid 1.4% from January to March, an annualised rate of 5.7%.

That is a better performance than even the United States.

But analysts say a sustained recovery remains unlikely.

Renewed demand

The strong performance in the first quarter was largely due to renewed demand for Japanese exports from the US.

Cars and electronic goods have done particularly well, made more competitive by a cheaper yen.

There was also growth in domestic demand, although that was helped by unseasonably warm weather.

And analysts also question the reliability of the figures. Few expect sustained growth in consumer spending.

No illusions

The markets have shrugged off the new data, partly because it was widely expected, but also because they have seen it all before.

I think it's important not to dismiss the fact that we are seeing the first signs of recovery in Japan.

Julian Jessop
Standard Chartered

Previous growth spurts during Japan's 12 years of stagnation have quickly petered out.

"The economy hit a floor faster than many people had anticipated," said Taro Saito, senior economist at NLI Research Institute.

"But I don't expect such strong growth in April to June. It will be much lower, probably closer to zero."

Weakening dollar

The economy remains heavily dependent on foreign markets, particularly the US, and deeply routed structural problems have yet to be addressed.

Promising new businesses are still being starved of capital, while unproductive, and heavily indebted construction companies and retailers are kept afloat.

Even the strong export performance is now under threat from a weakening dollar.

"We have probably seen the strongest GDP numbers that we will see this year," said Fiachra Maccana, head of equity research at WestLB Panmure.

Respite

"The trend in export growth will taper off over the summer."

But Julian Jessop, the chief economist at Standard Chartered told BBC News: "I think it's important not to dismiss the fact that we are seeing the first signs of recovery in Japan.

"I still think growth is going to be negative over the year as a whole but at least the trend is up.

"And there's a good chance that next year we will get decent growth of 2-3%," he added.

But even if this year's return to growth is temporary, it will provide some respite for the ailing Prime Minister, Junichiro Koizumi, and his stalled reform programme.