Japan's economy grew faster than expected in the first quarter on solid exports and consumption, data showed, though momentum will face a severe test as the full force of the energy shock from the Iran war filters through businesses and consumers.The data will be one of the key factors the Bank of Japan will scrutinize in determining whether the economy can withstand the energy crisis, and allow it to raise interest rates as soon as next month.
"Today's data shows the economy was on a solid footing before the Iran war, which means it has some buffers to weather the energy shock," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.
"The economy may contract in the second quarter but if it's just about prices rising overall, it can probably resume a recovery thereafter. If there's huge supply disruptions, the damage to growth could be so severe the BOJ may not have scope to raise interest rates in June," he said.
Japan's real gross domestic product (GDP) increased an annualized 2.1 percent, data showed on Tuesday, outstripping the median market forecast for a 1.7 percent gain and a revised 0.8 percent rise in the previous October-December quarter.
The second straight quarter of expansion in the world's fourth-biggest economy was underpinned by solid exports with net external demand adding 0.3 percentage point to growth, the data showed.
