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Thursday, June 10, 1999 Published at 10:49 GMT 11:49 UK

Business: The Economy

Japan's economy grows again

Markets rocketed on news of first growth for a year and a half

The Japanese economy has taken financial markets by surprise by growing much stronger than forecast.

Gross Domestic Product - the total output of a country's economy - was up a staggering 1.9% in real terms in the first three months of the year.

If this can be maintained the whole year, Japan would be set for a growth rate of 7.9%. However, economists warn that this is unlikely to happen.

[ image: Prime Minister Obuchi: has promised an economic recovery]
Prime Minister Obuchi: has promised an economic recovery
The government was forced to confirm the figure ahead of the official annoucement, after the news was broken by a financial newspaper in its late edition.

The news sent the Tokyo stock markets rocketing, with the Nikkei index closing up 480.12 points (2.89%) at 17,102.62.

Japan's currency got a boost as well. The yen reached a seven-week high of 117.63 against the US dollar - although the dollar has since recovered ground to 119.10.

Europe's single currency was a victim of Japan's success. The Yen reached another record against the euro of 123.82. The euro remained firm against other currencies.

Prime Minister Keizo Obuchi will ow be feeling more confident as he prepares for next week's G8 summit of major industrialised nations, now that he can point to the first positive growth figures for a year and a half.

Japanese economy is still not healthy

Economists are reacting cautiously, however, saying most of the first-quarter growth came from government spending and the figures do not necessarily signal a lasting recovery.

GDP for the year to the end of March was down 2% in real terms from the previous year and other data indicated continuing weak orders, especially in the core machinery sector.

The Economic Planning Agency's Vice Minister, Takafusa Shioya, said the growth figure confirmed that the economy had stopped declining. But he said he could not be sure that the pick up had fully begun.

The government is to announce on Friday steps to curb rising unemployment and boost industrial competitiveness. Unemployment currently stands at a record high of 4.8%.

Economists have said those measures will have to be complemented by large-scale public spending if the government is to achieve its target of 0.5% growth in the current fiscal year.

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