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Tokyo - Japan's economic growth in the first three months of 2014 hit its fastest pace in more than two years, revised data showed Monday, while analysts said a pick-up in consumer confidence indicated sentiment.
A surprise jump in capital spending powered the 1.6 percent expansion in the world's number-three economy between January and March, slightly better than an initial estimate of 1.5 percent.
It also marked the best quarterly advance since a 2.6 percent rebound several months after the 2011 quake-tsunami disaster.
Cash registers across Japan rang up big sales ahead of the April 1 consumption tax rise, a move seen as crucial to paying down a massive public debt but which critics warn could throw a nascent recovery off track.
Millions of shoppers scooped up everything from cars and refrigerators to televisions and alcohol in a spending spree that resulted in a 6.7 percent annualised first-quarter expansion in the economy - a hypothetical figure that shows growth stretched over a full year.
However, consumers have since reined in their buying, with figures this month showing household spending down 13.3 percent in April while retail sales suffered a similar slump.
Industrial production also slowed, exacerbating fears about the impact of higher sales taxes and renewing calls for more monetary easing by the Bank of Japan.
But fresh consumer confidence figures on Monday afternoon showed that sentiment rose in May, the first improvement in six months and offering hope that domestic demand was holding up better than some had expected.
“The rebound in consumer confidence last month suggests that the gloom resulting from the sales tax hike has started to fade,” said Marcel Thieliant of Capital Economics.
Also Monday, current account figures for April offered some good news for the tourism industry as foreign visitors spent more money than Japanese holidaymakers travelling overseas for the first time since 1970.
The number of visitors to Japan in April surged 33 percent to record 1.23 million as the country looks to boost arrivals ahead of the 2020 Tokyo Olympics.
Still, many economists think the BoJ will be forced to launch new measures later this year to counter a downturn.
That was highlighted last month by the International Monetary Fund which said “the current aggressive pace of monetary easing may need to be maintained for an extended period”.
The “BoJ should act quickly if actual or expected inflation stagnates or growth disappoints”, the Washington-based Fund said in its annual review on Japan's economy.
The central bank's unprecedented easing programme, unveiled last year, gave the economy a shot in the arm, but governor Haruhiko Kuroda has repeatedly said he is ready to add to the stimulus if necessary.
So far the bank has held off such a move, saying it wanted to assess the impact of the sales tax rise.
The loose monetary policy is part of a drive by Prime Minister Shinzo Abe to defeat years of deflation and reinvigorate the economy. Abe has also embarked on a huge spending drive, and plans a series of structural reforms.
But critics have derided the BoJ's moves as a risky money-printing exercise, and there is increasing scepticism over its target to reach a steady 2.0 percent inflation rate by next year.
There are also growing calls for Tokyo to launch deeper economic reforms - including free-trade deals and more flexible labour markets - to protect the recovery.
Abe has made some changes, including a bid to deregulate the energy sector.
But it was unclear if he would make good on a wider overhaul that will likely put him on a collision course with the agricultural sector and other politically powerful groups.
Japan's current account surplus in April narrowed 76.1 percent year on year to 187.4 billion yen ($1.8 billion), data showed Monday.
Japan maintained a surplus in the current account, the broadest measure of its trade with the rest of the world, for the third consecutive month, but it was far smaller than market expectations of more than 300 billion yen. - Sapa-AFP