Updated: 02/17/2014 10:29 | By Agence France-Presse

Japan economy grows in 2013, but concerns loom

Japan's economy logged its best performance in three years as Premier Shinzo Abe's growth blitz drove the expansion, but weak second-half data and an April sales tax rise are likely to dampen hopes for a firm recovery.


Japan economy grows in 2013, but concerns loom

Japan's economy has logged its best performance in three years, but weak second-half data are likely to dampen hopes for a firm recovery - by Yoshikazu Tsuno

The 1.6 percent expansion last year marked the first annual figures under Abe and his policy blitz dubbed Abenomics, after the conservative swept national elections on a ticket to restore Japan's fading status as an economic superpower.

Abe's government was likely to champion the figures published Monday as proof that the drive to stoke growth and conquer years of deflation was taking hold.

Since Abe swept to office in late 2012, the yen lost about a quarter of its value against the dollar -- giving a boost to Japanese exporters -- while Tokyo's benchmark Nikkei index soared 57 percent in 2013 to post its best performance in over four decades.

But critics fear that a tax rise in April -- seen as crucial for chopping Japan's massive national debt -- would curtail the budding recovery. 

Rates are set to increase to 8.0 percent from 5.0 percent, Japan's first sales tax rise since the late nineties.

The annual figures published Monday only modestly beat Japan's expansion in 2012 before Abe came to power, and weaker-than-expected second half data was likely to stoke more concerns about keeping up the pace of growth as Japanese consumers get set for the tax rise.

Consumer and corporate spending in the latter half of the year failed to take off, pointing to a still-cautious mood in households and the country's boardroom.

"Weak Q4 GDP figures show that the surge in spending ahead of the consumption tax hike has yet to come," Capital Economics said.

- Lacklustre exports -

The figures showed that, after leading G7 nations in the first half of the year, Japan's economy expanded just 0.3 percent in the October-December quarter, less than the 0.7 percent expansion that economists had expected, according to a survey by the leading Nikkei business daily.

Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, said weaker-than-expected growth figures were largely a result of lacklustre exports.

"The lower yen has boosted stock prices, which propped up consumption," he said. "But export growth has not been strong."

The strength of overseas economies, particularly in the United States, will be a key factor in the performance of Japan's economy this year, Shinke added.

"It would reasonable to expect further growth as overseas economies are expected to fare better this year," he said.

Japan's tax increase is seen as crucial to bringing down the heaviest debt burden among rich nations at more than twice the size of the economy. 

But the rate hike has stoked fears it would derail Japan's recovery and stoked speculation that the Bank of Japan (BoJ) would be forced later this year to expand its already unprecedented monetary easing drive to counter a slowdown.

The programme launched by the BoJ, which kicks off a two-day meeting on Monday, is a cornerstone of Abe's policy, which meshes big government spending and central bank easing.

It also calls for deeper reforms, most yet-to-be-seen, including free-trade deals, more flexible labour markets and bringing more women into the workforce.

The Japanese economy grew 1.4 percent in 2012 and contracted 0.5 percent in 2011 as the country was hammered by a quake-tsunami disaster and subsequent nuclear crisis.

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