The Japanese economy is growing again

Photo by Junko Kimura/Getty Images

The Japanese economy returned to growth in the first quarter of 2016, expanding by 0.4%, according to the preliminary GDP estimate released by the Japanese government.

The increase, well above the 0.1% gain forecast, saw the seasonally adjusted annual rate (SAAR) accelerate to 1.7%, again well ahead of the 0.2% level expected.

It marked the fastest annual growth rate seen since the same corresponding quarter in 2015, helped by the extra day in the quarter thanks to 2016 being a leap year.

Taking some of the gloss off the headline result, the economic contraction in the prior quarter was revised up, falling 0.4% from the 0.3% figure reported previously.

In essence, the quarterly expansion in this quarter offset the decline of the previous quarter.

At least it’s heading in the right direction.

According to the Japanese Cabinet Office, domestic demand contributed 0.2 percentage points (ppts) to growth, a contribution that was matched by external demand which also added 0.2 ppts thanks primarily to a 0.6% lift in exports.

From a domestic standpoint, private consumption, underpinned by household spending, grew by 0.5%, helping to offset declines in housing and business investment of 0.8% and 1.4% respectively.

Public demand — or government expenditure — was also strong, gaining 0.6%.

The Japanese government will release the second estimate for Q1 GDP on June 8. Given it captures more hard data for the quarter, rather than estimates, it is prone to substantial revisions.

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