Second estimates released by Japan's Cabinet Office Monday showed that the nation's GDP rose at a faster than initially estimated pace in the first quarter, with a strong increase in private non-residential investment supporting the upside.

The first quarter performance reflected strong economic activity in the form of consumer spending and investment by corporations ahead of the sales tax hike in April. The tougher quarterly comparisons could render the second quarter performance weak.

GDP rose 1.6 percent quarter-over-quarter, bigger than the 1.5 percent growth estimated initially and the consensus estimate of 1.4 percent growth. This followed a 0.1 percent rise in the fourth quarter and marked the fastest increase since the 2.6 percent increase in the third quarter of 2011.

Contribution wise, private consumption accounted for 1.4 percent points of the total quarterly growth and private non-residential construction contributed to another 1.1 percentage points. Meanwhile, net exports deducted 0.3 percentage points from growth and change in private sector inventories took off 0.5 percentage points from growth.

The annualized growth of GDP was also upwardly revised to 6.7 percent quarter-over-quarter from 5.9 percent.

Analysing based on expenditure approach, domestic demand rose 1.8 percent, with private demand rising 2.6 percent, while public demand fell 0.5 percent.

The rise in private demand was driven by upward revisions on most of the sub-categories. Private consumption rose 2.2 percent, revised up from the 2.1 percent preliminary estimate. Private non-residential investment grew notably by 7.6 percent, more than the 4.9 percent growth estimated initially. Meanwhile, the growth in private residential investment was left unrevised at 3.1 percent.

The drop in public demand reflected the 2.7 percent decline in public investment, bigger than the 2.4 percent decline estimated earlier. However, government consumption rose 0.1 percent as estimated.

Imports rose at an unrevised 6.3 percent in the first quarter, almost doubling the 3.7 percent rise in the fourth quarter. Also, exports surged at an unrevised 6 percent in the first quarter following a 0.5 percent rise in the previous quarter.

Meanwhile, the GDP deflator fell 0.2 percent sequentially following the 0.1 percent increase in the previous quarter. Annually, GDP deflator was down 0.1 percent compared to a 0.4 percent drop in the fourth quarter.

On a year-over-year basis, GDP rose 3 percent in the first quarter compared to the 2.5 percent increase in the fourth quarter. This is the largest rise since the second quarter in 2012.

Commenting on the data, Capital Economists said, "The output will surely shrink this quarter as consumers rein in spending after the consumption tax hike. However, the slowdown in domestic demand should lead to a decline in import volumes, so net exports should finally add to growth. More importantly, surveys started to recover last month, which suggests that any weakness should prove short-lived."

Also, the trade balance report released by Japan's Ministry of Finance showed that the deficit on trade in goods widened in April. The goods trade deficit widened to JPY 780.4 billion in April from JPY 708.2 billion in the year-ago period.

The current account surplus rose to JPY 187.4 billion, less than the JPY 287.7 billion surplus estimated by economists and the 784.4 billion surplus recorded for April last year.

Meanwhile, a separate report showed that bank lending in Japan rose at a faster rate in May.

The Bank of Japan said total bank lending rose 2.3 percent year-over-year in May following 2.1 increase each in April and March. Excluding trusts, lending by major and regional banks, rose 2.4 percent, faster than the 2.2 percent increase in April.

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