Growth figures show Japan on recovery track

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

Economy Minister Motohisa Furukawa said the world's third-biggest economy, hit hard by last year's quake-tsunami and a surging yen, was likely to see further expansion in April-June, but warned growth could be hampered by turmoil in Europe.

Preliminary figures from the Cabinet Office showed 1.0 percent growth in January to March gross domestic product from the previous three months, 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 quake-tsunami in March 2011.

On an annualised basis, Japan's economy grew 4.1 percent in the January to March period, the data showed, also beating expectations for the economy to grow 3.5 percent.

"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 debt-hit Greece will leave the 17-nation bloc.

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

Worries over Europe -- a key market for everything from Japanese televisions and DVD players to cars and machinery -- remain at the top of policymakers' list of concerns.

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

A key driver in the quarterly 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.

"Looking forward, growth will be spurred by continued reconstruction demand and domestic demand," he said.

On Wednesday, Japan's core machinery orders fell 2.8 percent in March from the previous month, although they rose 0.9 percent in the January to March quarter from the previous three months.

Machinery orders are seen as a leading indicator of corporate capital spending and watched for movements that may reflect the outlook for the broader economy.

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 its atomic crisis, with industry being asked to make deep energy cuts.

All 50 of Japan's nuclear power plants have been switched off following routine maintenance checks after last year's tsunami, which swamped reactors at Fukushima and sent them into meltdown.

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.

The March 2011 quake-tsunami disasters smashed complex supply chains and shuttered factories as well as leaving more than 19,000 people dead or missing along the northern Pacific coast.

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