Japan raises growth forecast to 2.6%

TOKYO: Japan's economy, the world's second largest, will expand at a faster pace in the current fiscal year than previously forecast as robust exports to Asia and improving corporate earnings are underpinning a broadening recovery.

The Cabinet Office said Tuesday that Japan's gross domestic product will rise 2.6 per cent in the year to March 2011, faster than an earlier estimate of 1.4 per cent. 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 Takashi Hanagaki, an official from the Cabinet Office.

Japan's 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 per cent of Japanese gross domestic product.

``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 over 50 per cent of total Japanese exports. Strong Asian demand is leading to higher production, investment and profits at Japanese companies.

Earlier in the month, Japan upgraded its economic growth in the January-March quarter to an annualized pace of 5 per cent from 4.9 per cent in a preliminary report.

But the encouraging figures, including Tuesday's upward GDP revision, are tempered by persistent deflation and other negatives, including a lackluster labor market.

Falling prices may boost individual purchasing power, but deflation is generally bad for an economy. It plagued Japan during its ``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. Its public debt reached 218.6 per cent of GDP last year, according to the International Monetary Fund.

Tackling the ballooning national debt is among most pressing tasks for Japan's new Prime Minster Naoto Kan.