Japan's Economy Grew The Most In A Year Last Quarter As Consumer Spending Remained Solid and Exports Increased

Japan's economy rose more rapidly than expected last quarter, growing the most in a year while riding on the shoulders of solid consumer spending and an increase in exports that were spurred by the robust monetary and fiscal stimulus of Prime Minister Shinzo Abe.

The nation's gross domestic product rose an annualized 3.5 percent, a Japanese cabinet office release revealed, compared with 2.5 percent for the U.S. in the same quarter, Reuters reports.

Private consumption, making up 60 percent of GDP, contributed 2.3 percentage points to the rise. Nominal GDP, which is unadjusted for price changes, jumped 1.5 percent, which is also the most in a year, according to Bloomberg.com.

Consumers -- with a stock-market surge on their side -- are responding to the reflation campaign of Abe and Bank of Japan’s chief, Haruhiko Kuroda, but businesses are still staying cautious, the report on Wednesday reveals.

However, that could change as the yen’s 20 percent slide against the dollar in the past six months spurs profits and Abe’s government lessens regulations, notes several news reports.

“Japan is clearly back from stagnation last year,” Naoki Iizuka, an economist at Citigroup Inc. in Tokyo, noted. “The key from here is whether Abe can unveil a strong growth strategy. If he succeeds, that will boost business investment to support growth.”

In June, Abe plans to roll out his "third arrow" of structural reform, which follows the first two arrows of monetary and fiscal stimulus, Bloomberg notes.

The GDP deflator, a broad measure of prices across the economy, fell 1.2 percent from a year before, Bloomberg reports. It’s the most significant dip since 2011's final three months. The Bank of Japan’s intention of doubling the monetary base -- a measure of the supply of money in the economy -- helped the yen, in 2013, get weaker by about 15 percent against the dollar and 13 percent against the euro, the biggest declines of the 16 major currencies tracked by Bloomberg News.

The Nikkei 225 Stock Average (NKY) has gone up 45 percent in 2013, more than twice the gain in the Standard & Poor’s 500 Index.

Meanwhile, bonds have tumbled as inflation expectations have climbed, Bloomberg reports. Ten-year government bond yields jumped the most in nearly 10 years until the Bank of Japan announced a 2.8 trillion yen ($27 billion) infusion of funds.

“Some say Japanese stocks may be too high but the GDP shows the strength of economy may justify the uptick trend in stocks,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute. “I see a chance that Japan will have even better growth this quarter.”