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Last Updated: Monday, 12 March 2007, 07:16 GMT
Japan's growth rate picks up pace
Shoppers in Japan
Consumers and companies are more optimistic about their future
Japan's economy, the world's second largest, has grown more quickly than many experts forecast, underlining its emergence from years of stagnation.

The rate of growth was 1.3% in the three months from October to December, up from 1.2% in the previous quarter, Cabinet Office figures showed.

On an annual basis growth was 5.5%, the quickest for three years.

Japan's economy has turned around as consumers and companies have picked up spending and exports have increased.

A separate Cabinet Office report showed that households had become more confident about the outlook for incomes and jobs, with the government's index climbing to 48.4 in February, from 48.1 in January.

Price problems

But analysts said the latest growth figures were unlikely to prompt another rise in rates as concerns remained that that higher borrowing costs could stall the country's economic recovery.

Politicians have asked the Bank of Japan (BOJ) not to rush to raise interest rates for fear that it would stop consumer and company spending in its tracks.

Japan has only just increased its main borrowing cost from almost zero to 0.5%, the highest level in a decade.

At the same time, many analysts are predicting that February's consumer price figures will show that prices actually dropped last month.

"The BOJ won't raise rates for a while if it thinks about prices," said Takeshi Minami of Norinchukin Research Institute.

"Though it seemed to place greater emphasis on rectifying ultra-low rates and preventing an asset bubble when it raised rates last month," he added.

According to the latest government figures one of the main drivers of growth was a 3.1% increase in the capital spending, up from a 2.2% preliminary estimate.

Industrial output weak in Japan
28 Feb 07 |  Business
Japan sees account surplus shrink
14 Feb 07 |  Business
Japan ups interest rates to 0.5%
21 Feb 07 |  Business
Japanese consumer spending slips
30 Jan 07 |  Business

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