The economy will expand this year at a faster pace than previously forecast as robust exports to Asia and improving corporate earnings are underpinning a broadening recovery, the Cabinet Office said Tuesday.
Gross domestic product will rise 2.6 percent in the year to March 2011, faster than an earlier estimate of 1.4 percent, the office said. GDP represents the total value of a nation's goods and services.
"The upward projection was due to brisk growth in exports, especially to Asia. The forecast was also upbeat thanks to a recovery in capital spending and improving corporate earnings," said Cabinet Office official Takashi Hanagaki.
The economy has emerged from last year's recession — the worst since World War II — thanks to a recovery in exports, which alone account for 10 percent of the nation's GDP.
"The global economic recovery was stronger than expected, helping boost Japanese exports," said Hiroshi Watanabe, an economist at Daiwa Institute of Research.
Brisk Asian demand is vital to Japan's exports. Asia alone accounts for more than 50 percent of the total. Strong Asian demand is leading to higher production, investment and profits.
Earlier in the month, the government upgraded economic growth in the January-March quarter to an annualized pace of 5 percent from 4.9 percent in a preliminary report.
But the encouraging figures, including Tuesday's upward GDP revision, are tempered by persistent deflation and other negative factors, including a lackluster labor market.
Falling prices may boost individual purchasing power, but deflation is generally bad for an economy. It plagued Japan during the "Lost Decade" in the 1990s, hampering growth by depressing company profits, sparking wage cuts and causing consumers to postpone purchases.
Japan is also one of the most indebted countries in the world. Tackling the ballooning national debt is among most pressing tasks for new Prime Minister Naoto Kan.