TOKYO • Japan's second-quarter gross domestic product (GDP) data put the nation in an unexpected spot: at the top of the growth table among Group of Seven (G-7) advanced economies.
The strongest domestic demand in years helped drive Japanese GDP to a sixth consecutive quarter of expansion, elevating hopes for a sustainable recovery in an economy that has been better known in recent years for tepid inflation and a declining population than beating forecasts.
Stronger consumption at home is seen as key to maintaining momentum and achieving more progress towards the Bank of Japan's (BOJ's) still distant 2 per cent inflation goal.
Exports had been doing most of the heavy lifting as Japan's economy grew in recent quarters, but the figures for the three months to June show domestic demand was a bigger contributor to the 4 per cent annualised growth, the biggest increase since January to March 2015.
Compared with the previous quarter, the economy expanded 1 per cent, versus the median estimate for 0.6 per cent growth.
"That makes Japan the fastest- growing economy in the G-7 this quarter by our reckoning and may restart the chatter about the BOJ's eventual quantitative and qualitative easing exit strategy," said Mr Rob Carnell, chief economist for Asia at ING in Singapore.
With Canada, Germany and Italy yet to release their second-quarter figures, Japan could be knocked off its pedestal, but consensus forecasts make it a clear leader for now. The preliminary data from Japan's Cabinet Office is also subject to revision and a modest downgrade is possible.
Increase in private consumption.
Increase in business spending.
Japan's private consumption and business spending hit the highest levels since the first quarter of 2014 before a sales tax increase in April that year sent the economy into a long slump.
Private consumption adjusted for inflation, which accounts for about 57 per cent of real GDP, gained 0.9 per cent from the first quarter. Business spending advanced 2.4 per cent. The size of the economy rose to 545 trillion yen (S$6.8 trillion).
Wages rose 0.7 per cent in April to June from the previous quarter, which was the biggest increase since July to September last year.
"The fact that the economy was able to grow this much without gains in exports shows our fundamentals are solid," said Mr Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.
Inflation has lagged behind growth, even amid the tightest labour market in decades.