Tokyo - Japan’s economy grew in the first quarter at its fastest pace in more than two years, data showed yesterday, while analysts said a pick-up in consumer confidence indicated sentiment was improving despite the impact of a sales tax hike.

A surprise jump in capital spending powered a 1.6 percent quarterly expansion in the economy, slightly better than an initial estimate of 1.5 percent.

It marked the best quarterly advance since a 2.6 percent rebound several months after the 2011 earthquake and tsunami disaster.

Tills across Japan rang up big sales ahead of the April 1 consumption tax rise, resulting in a 6.7 percent annualised first-quarter expansion in the economy – a hypothetical figure that shows growth computed over a full year.

However, consumers have since reined in their buying, with figures released this month showing household spending down 13.3 percent in April. Retail sales suffered a similar slump. Industrial production also slowed, renewing calls for more monetary easing by the Bank of Japan (BoJ).

But consumer confidence figures released yesterday showed sentiment rose in May, the first improvement in six months – offering hope that domestic demand is holding up better than some predicted.

“The rebound in consumer confidence last month suggests that the gloom resulting from the sales tax hike has started to fade,” Marcel Thieliant of Capital Economics said.

Also yesterday, 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 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.

This was highlighted last month by the International Monetary Fund (IMF), 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 IMF said.

Central bank governor Haruhiko Kuroda has repeatedly said he was 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. – Sapa-AFP