Pace of Growth in Japan Hits a 10-Year High : Economy Expanded at 2.7% Rate in 1st Quarter

Japan reported on Thursday that its economy grew at its fastest pace in 10 years in the first three months of this year, surprising even the most optimistic economists.

The economy expanded by a brisk 2.7% in the January to March quarter, bringing the growth rate for the financial year ended in March to 4.9%, far above the government’s 3.7% target.

“I’m a little bit amazed at the number,” said economist Soichiro Akahane of Bank of Tokyo Ltd. “This shows Japan’s economy is very strong.”

Economists were generally looking for Japan’s gross national product to rise only 1.5% during the quarter, with the highest forecasts at around 2.2%.

Shift in Spending Habits

The quarterly figure on an annual basis is a sharp 11.3%.

The swift economic expansion emanated mainly from an acceleration of spending by consumers and businesses, said Hidehiro Iwaki, economist for Nomura Research Institute. “Private consumption was terrific.

“People used to spend in the last quarter of the year but have recently started in the first quarter,” Iwaki said. Increased business investments in plant and machinery also added to the acceleration of private spending, he added.

“Investments by manufacturers had bottomed out but now have started to increase,” Akahane said.

With consumers spending more, corporations are boosting investments in their factories so production will meet the growing demand, he said.

This spending by businesses should be steady and support economic growth in the April to June quarter, Akahane said. “Recovery of this private consumption is a very good sign for the future.”

“The overall economy will continue to be strong because personal consumption will stay strong,” Iwaki said. “Business investments will also be strong in the latter part of this year . . . and enhance domestic growth in 1988 and even 1989.”

Changed Tax Status

He said stable prices have helped increase consumer confidence.

The elimination of tax-free saving accounts from April has also spurred more buying, and people tend to purchase durable goods instead of saving, he added.

Kengo Inoue, chief of the Bank of Japan’s domestic division Research and Statistics Department, said that with the strong growth, there should be no reason for additional government moves to stimulate the economy, such as injecting new funds or easing monetary policy further.