Japan's economy grows at 3.3 per cent annual pace in first quarter

By Yuri Kageyama, The Associated Press

TOKYO - Japan's economy grew at a stronger-than-expected 3.3 per cent annual pace in the first quarter, racking up its third consecutive quarter of growth.

Japan's gross domestic product - or the value of a country's goods and services - grew 0.8 per cent in the January-March quarter from 2007's fourth quarter, according to Cabinet Office data released Friday. That would be a 3.3 per cent annual pace.

Economists surveyed by Dow Jones Newswires had expected, on average, a 0.7 per cent quarterly rise and an annual rate of 2.8 per cent.

But analysts warned that growth in Japan - the world's second largest economy - was almost certain to slow in coming months. They noted technical factors, such as a downward revision for the previous quarter and an extra day in February for the leap year, boosted the first-quarter numbers.

"The appearance of good news is actually partly false," said Kenichi Kawasaki, an economist at Lehman Brothers in Tokyo.

Japanese company profits are being hammered by rising oil prices, causing them to be cautious about investments and salary raises, he said. And consumers can't be expected to spend more if their paycheques are shrinking amid soaring energy and food prices, he added.

Analysts said much of the first-quarter boost to the economy came from exports to emerging markets, such as China and other Asian nations. But the higher energy and food prices could also impact Japan's exports going forward.

"It's unthinkable that growth will continue at this pace," said Yoshimasa Maruyama, economist at BNP Paribas in Tokyo.

Company investments sank into negative territory, contracting 0.9 per cent in January-March after rising the two previous quarters.

The latest data showed both exports and imports remain relatively strong - with exports growing 4.5 per cent from the previous quarter, while imports grew 2 per cent.

Private sector demand was weak but growing, at 0.5 per cent for the quarter, while household consumption climbed 0.8 per cent.

For the fiscal year ended March, Japan's economy managed to grow 1.5 per cent, although that was weaker than the 2.5 per cent growth for the year ending March 2007.

The GDP numbers for the last three quarters have been improving. Japan's economy grew 0.3 per cent in the quarter ended Sept. 30, and 0.6 per cent in the quarter ended Dec. 31, according to the government.