AP News – May 18, 2016 – TOKYO (AP) — Japan’s economy grew at a better than expected 1.7 percent annual pace in the first quarter of this year, as solid consumer demand and higher government spending offset relatively weak business investment and sluggish exports.

The Cabinet Office reported Wednesday that the quarterly pace of GDP growth for the world’s third-largest economy was 0.4 percent.

Most economists had forecast growth would be flat, or only a few tenths of a percentage point at best.

Private consumption, which accounts for Japan’s largest share of growth, rose by an anemic 0.5 percent in January-March from a year earlier, while public demand expanded by 2.6 percent. Business investment and spending on housing declined.

“Consumer spending made a solid contribution to growth in the first quarter, but weak business and residential investment prevented Japan’s economy from reaching escape velocity,” Bill Adams, senior international economist at PNC Financial Services Group, said in a note.

A recent surge in the value of the yen, combined with a recovery in oil prices, has left businesses less willing to invest or raise wages. Consumers, in turn, have remained frugal, nervous over the future outlook and likely cuts to public support for pensions and health costs.

Despite the upbeat first quarter figures, recent weak data have raised expectations that Prime Minister Shinzo Abe may put off a planned sales tax increase due in April 2017 to prevent further disruptions, given the faltering progress toward a sustained recovery.

After dipping initially, the Nikkei 225 stock index rose 0.6 percent on Wednesday to 16,750.31. The dollar was unchanged at 109.14 yen.

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