Japan, GDP grows more than expected in Q1 (+2.1%)

NEW DELHI - Japan's economy grew faster than expected in the first quarter of the year, driven by exports, investment and consumption, and because the full impact of the energy shock caused by the Iran war will only be felt in the next survey.

Between January and March, the gross domestic product of the world's fourth largest economy increased by 2.1% on an annualised basis, exceeding the market's median forecast (+1.7%) and the 0.8% rise recorded in the October-December quarter. Japan, unlike other Asian countries, publishes GDP data on an annualised basis, thus projecting the figure recorded during the quarter over the entire fiscal year.

GDP numbers will be one of the key factors that the Bank of Japan (BoJ) will analyse to determine whether the economy is robust enough to absorb an interest rate hike as early as next month. Rates have been at a standstill at 0.75% since last December, but at the last policy board meeting, three out of nine members advocated a 25 basis point increase.

This is the sharpest split since the current governor, Kazuo Ueda, has been at the helm of the BoJ. Last March there was only one dissenting voice over the decision not to raise the cost of money. To find a more divided board (5 versus 4) one has to go back to 2016, when the BoJ ventured into negative rate territory.

In recent months the government of PM Sanae Takaichi has put pressure on the central bank to keep monetary policy accommodative, but the lack of interest rate hikes is reverberating, along with the executive's aggressive spending programmes, on the yen. The Japanese currency has been travelling close to 160 against the dollar for days, contributing to accelerating inflation at a time when crude oil prices are very high.