Growth figures show Japan on recovery track

Japan's economy grew by a faster-than-expected 1.0 percent in the three months to March, official figures showed Thursday, as rising domestic demand and a boost in exports kept it on the recovery path.

Economy Minister Motohisa Furukawa said the economy, hit hard by last year's quake-tsunami disaster and a surging yen, was likely to see further expansion in April-June, but warned of the possible impact of Europe's debt crisis.

Preliminary figures from the Cabinet Office showed 1.0 percent quarter on quarter growth in January-March gross domestic product, slightly above expectations for a 0.9 percent rise.

It marked the third straight quarter of real GDP growth for Japan, also buoyed by government reconstruction spending following the devastating natural disasters in March 2011.

On an annualised basis, Japan's economy grew 4.1 percent in the quarter, also beating expectations of 3.5 percent expansion.

"Our country's economy is continuing its upward movement," Furukawa said.

"Gradual growth is likely to continue in the April-June period and afterward, as reconstruction demand will underpin the economy," he added.

However, Furukawa also warned that "we need to be mindful of risk factors such as re-intensification in Europe's sovereign debt crisis" amid increasing worries that under-pressure Greece will leave the 17-nation bloc.

Europe, a key market for everything from Japanese televisions and DVD players to cars and machinery, remains at the top of policymakers' concerns.

At the weekend, Prime Minister Yoshihiko Noda cited the continent as the "biggest downside risk factor for the Japanese economy" along with a strong yen, which makes exporters' products more expensive overseas.

The unit remains strong but has fallen off record highs against the dollar reached late last year.

A key driver in the quarter-on-quarter growth data released Thursday was public investment, which rose 5.4 percent, amid strong reconstruction spending, while exports rose 2.9 percent on quarter.

Government subsidies for environmentally friendly cars were likely a key factor behind a boost in domestic demand, said Yasuo Yamamoto, senior economist at the Mizuho Research Institute.

"Growth will be spurred by continued reconstruction demand and domestic demand," he said.

Also Thursday, Japan revised industrial production data for March to a 1.3 percent rise on month from a preliminary 1.0 percent increase, a bright spot for the economy, which has been beset by deflation for years.

But homes and businesses in Japan are getting set for what could be a summer of power shortages after the nation switched off its nuclear reactors following last year's atomic crisis, with industry being asked to make deep energy cuts.

All 50 of Japan's nuclear power plants have been switched off after the March 11 tsunami, which swamped reactors at the Fukushima Daiichi plant, and sent them into meltdown.

Energy shortages could pose a serious risk to Japan's recovery, while a lack of confidence in the euro may boost the safe-haven yen and create a headache for the nation's embattled exporters, said Takeshi Minami, economist at Norinchukin Research Institute.

"We still do not know how much we will be short on electricity, but a serious shortage could dampen the economy when it is expanding on reconstruction demand," he said.

Japan's economy was also hit by severe flooding in Thailand in late 2011, disrupting global supply chains and the production capability of Japanese manufacturers, particularly electronics and automakers.

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