First Quarter: Japan Economy Grows Fastest in Two Years

The economy in Japan grew during the first quarter of 2014 at its fastest rate in over two years.

The data released Monday coincided with information from analysts that consumer confidence picked up indicating that sentiment was improving despite an impact due to the sales tax increase.

The growth was powered by an increase in capital spending that helped the economy grow by 1.6% from January through March, which was slightly higher than an estimate of 1.5% released earlier.

The world’s third largest economy also marked its best advance for a quarter since an increase of 2.6% a number of months after the earthquake and tsunami tragedy in 2011.

Cash registers throughout Japan registered huge sales ahead of the consumption tax increase of April 1, a move seen important to pay down the public debt but one critic has warned could throw the recovery off track.

Millions of Japanese shoppers bought everything from refrigerators to cars to alcohol and television. The spending spree ended up registering an annualized expansion during the first three months of 6.7%. That figure is hypothetical as it shows that same growth, as if it were stretched over a complete year.

Since then however, consumers have cut back on spending, with figures in June showing spending down in households by 13.3% during April, while retail sales were also hurt.

In addition, the industrial production was down, which increased fears about how much the sales tax increase was making an impact and renewing calls of more monetary easing by Japan’s central bank.

However, fresh figures on consumer confidence on Monday showed that in May consumer sentiment increased, the first increase in the past six months and offering hope that demand at home was withstanding the tax hike better than some expected.

In addition, current figures for the month of April offered some positive news for tourism as visitors from other countries spent more than did vacationers from Japan traveling overseas for just the first time in 44 years.

In April the number of foreign visitors in Japan increased by 33% to over 1.23 million.

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