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May 20, 2010    

Japanese economy surges 1.2% in Q1

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by Kay Murchie
Japanese economy surges 1.2% in Q1

The Cabinet Office has today announced that the world’s second largest economy expanded by 1.2% between January and March compared with the previous quarter - marking the fourth straight quarter of expansion.

The growth was boosted by exports, while on an annual basis, growth was 4.9% - however, analysts had expected growth of between 5.4% and 5.9%.

However, while growth surges ahead in Japan, there are many risks which could hold the strong recovery back.

Deflation remains a problem for the economy. Japanese core consumer prices fell 1.2% in March from a year earlier – representing the 13th consecutive monthly decline that the economy has been in deflation.

Deflation (where prices fall rather than increase) can be a serious threat to an economy because it deters consumers and businesses from spending in expectation of falling prices.

Furthermore, the country’s debt currently stands at nearly 230% of GDP – the highest of any industrialised nation.

Yesterday, the International Monetary Fund (IMF) warned that Japan should start reduce its massive debt from 2011 by increasing consumption tax, while containing its growth in spending.

In the meantime, Japan looks set to lose its status as the world’s number two economy since China (which is currently the world’s third largest economy) is set to overtake it as economic growth surges ahead.

Japan has held the position for more than four decades but deflation risks and a dwindling population look set to threaten its status.

In other news this week, an official index revealed that Japanese consumer confidence rose for the fourth month in a row last month to reach a level of 42, compared with 40.9 in March and the highest level since October 2007.

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