Japan's Economy Grows at Fastest Pace in Three Years

Japan's economy expanded at the fastest pace in three years, exceeding the government's initial estimate, as surging export demand prompted companies to increase spending on factories and machinery.

The world's second-largest economy grew at an annual 5.5 percent pace in the three months ended Dec. 31, the Cabinet Office said today in Tokyo. The growth was more than the 5.1 percent median forecast of 23 economists surveyed by Bloomberg News and above the February estimate of 4.8 percent.

``Japan's economy is solid and will keep expanding, driven by a solid corporate sector,'' said Takuji Aida, chief economist for Japan at Barclays Capital in Tokyo. ``The economy is likely to exceed at least its potential growth rate of 1.8 percent in the first quarter.''

A jump in exports boosted the current account surplus by a more-than-expected 50 percent in January from a year earlier, a separate report showed today, another sign that the economy will keep expanding. Consumer spending, which accounts for more than half of the economy, has also shown signs of improvement, Economic and Fiscal Policy Minister Hiroko Ota said last week.

Japan's growth compares with 2.2 percent annualized growth in the U.S. and the 0.9 percent quarter-on-quarter expansion of the 12 nations that share the euro.

The Nikkei 225 Stock Average rose 0.8 percent at 11:38 a.m. in Tokyo. The yen climbed to 118.24 against the dollar from 118.37 before the report. The yield on the benchmark 10- year bond increased 1.5 basis points to 1.62 percent.

Interest Rates, Inflation

The Bank of Japan doubled its benchmark overnight lending rate on Feb. 21 to 0.5 percent, its second rate increase in almost six years. Governor Toshihiko Fukui has said the central bank needs to gradually raise borrowing costs as the economy expands and prices rise.

Still, separate figures today showed producer prices last month rose at the slowest pace in 1 1/2 years as oil costs fell, adding to evidence there is little risk of inflation in Japan's economy.

The measure for gross domestic product increased after a report last week showed corporate spending surged 16.8 percent, the fastest pace in at least four years. The release accounts for about 60 percent of the capital spending component of GDP.

Capital spending rose 3.1 percent, up from the 2.2 percent preliminary estimate and higher than the 2.8 percent expected by economists, today's figures showed. Inventories shaved 0.1 percent from growth, unchanged from the preliminary estimate.