Japan’s Economy Grows Faster Than Estimated on Investment Gains

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General Economy Images Of Kobe As Japan's Retail Sales Rise Less Than Forecast
Women eat Kakigori shaved ice dessert in the Chinatown area in Kobe, Hyogo Prefecture, Japan, on Wednesday, May 27, 2015. Japan's retail sales rose less than forecast in April, signaling a weak start to the second quarter for an economy that is still weighed down by last year's sales-tax increase. Photographer: Buddhika Weerasinghe/Bloomberg

Japan’s economy grew at a faster pace than initially estimated in the first quarter, on a stronger pickup in business investment and inventory buildup.

Gross domestic product expanded an annualized 3.9 percent, more than a preliminary 2.4 percent, according to revised data from the Cabinet Office. The median forecast of 26 economists surveyed by Bloomberg was for 2.8 percent growth.

“Japan is in on a trajectory for a recovery,” said Taro Saito, an economist at NLI Research Institute. “The Bank of Japan must be relieved with today’s report, as it signals there’s no need for them to do more now.”

Prime Minister Shinzo Abe is pushing Japan Inc. to plow more of its cash hoard and record profits into an economy that faces a shrinking population and mounting debt. Investment remains below 2008 levels, consumer spending is still weighed by last year’s sales-tax increase and high inventories risk denting growth this quarter.

The yen was little changed at 125.58 per dollar at 10:00 a.m. in Tokyo while the Topix share index declined 0.1 percent.

The increase in inventories was the main force driving the economy in the first quarter, adding more to the expansion than capital expenditure or consumption.

Inventories, which ballooned after the sales-tax hike last year depressed spending by companies and consumers, added 0.6 percentage point to growth, more than an initial estimate of 0.5 point.

The buildup in inventory could drag on growth in the current quarter.

Business investment gained 2.7 percent from the previous quarter, more than an initial estimate of 0.4 percent.

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