JAPAN’S ECONOMIC GROWTH BOOSTED BY EXPORT DEMAND

Japanese customers have been reluctant to spend during deflation

Japan's continuing export-driven recovery helped economic growth accelerate in the first three months of 2010, official figures have shown.

Its economy grew by 1.2% between January and March from the previous quarter, the Cabinet Office said.

On an annualised basis, growth was 4.9% – less than analysts had predicted.

Finance Minister Naoto Kan warned that while Japan was enjoying a “steady recovery”, its central bank needed to do more to curb deflation.

Emerging Asian markets such as China have been driving Japan's economy and allowing what the International Monetary Fund (IMF) has called a “tentative” recovery from recession.

New cars and high tech products have been most in demand from overseas consumers.

However, Takeshi Minami, economist at Norinchukin Research Institute, said Japanese growth was likely to slow between April and June.

“It will be difficult to expect exports to continue making this much of a contribution,” he said.

Tax question
The importance of exports is emphasised by the weak state of domestic consumption.

Japan's continuing problem of deflation is bad for the economy as it tends to make consumers and businesses delay major purchases in the expectation that prices will fall further in the future.

The Bank of Japan has made targeting falling prices a priority, and the IMF thinks inflation will start to creep back late next year.

But the economic growth figures indicate that the boost to growth from rising exports may be beginning to filter down to consumers at home, encouraging them to spend, says the BBC's Tokyo correspondent Roland Buerk.

Healthy growth will also be critical in giving Japan the opportunity to tackle its debt, which is causing increasing concern after the government debt crisis in Greece.

On Wednesday, the financial body the IMF urged Japan to start cutting its massive debt burden from next year.

It said Japan should start increasing consumption tax to tackle its debt, which at nearly 230% of GDP, is the highest of any industrialised nation. It has warned it could reach 250% by 2015.

Japan, like most developed economies, has poured money into the financial system to avert the worst of the financial crisis, something the IMF said had stabilised markets and supported the recovery.

The government is expected to announce a strategy to try to contain its debt next month.

Credit rating agencies have warned they may downgrade Japan unless the plan is “decisive”.