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Japan economy rebounds in April-June on strong domestic demand

This undated file photo shows a supermarket in Urayasu, Chiba Prefecture, near Tokyo. (Kyodo)

TOKYO (Kyodo) -- Japan's economy returned to a growth path in the April-June quarter, avoiding a lapse into recession thanks to a pick-up in domestic demand, government data showed Friday.

Real gross domestic product, the total value of goods and services produced in the country adjusted for inflation, grew at an annualized rate of 1.9 percent, the Cabinet Office said in a preliminary report, beating the average forecast for 1.2 percent growth among economists surveyed by Kyodo News.

Quarter on quarter, the world's third-largest economy grew 0.5 percent.

The strong reading represents a rebound from a downwardly revised 0.9 percent contraction on an annual basis in the preceding quarter when heavy snowfall dented household spending, ending a two-year growth streak. Had the economy shrunk for two straight quarters, it would have fulfilled the technical definition of a recession.

"It confirms that January-March was a temporary soft spot and the economy is poised to continue growing, I would say, until fall 2019," said Yoshimasa Maruyama, chief economist at SMBC Nikko Securities Inc.

The data will be a tailwind for Prime Minister Shinzo Abe, who is banking on the success of his economic policies to help him win a third term as leader of the ruling Liberal Democratic Party in next month's presidential race.

It should also reassure the Bank of Japan, which is hoping that robust domestic demand will help lift inflation toward its 2 percent target by giving companies the confidence to raise the prices of goods and services.

But the economy is also facing downside risks including escalating global trade tensions.

"Many factors could have an effect, including trade friction between China and the United States," Japanese Finance Minister Taro Aso told reporters after the release of the GDP data.

Torrential rain that caused massive flooding and landslides in western Japan in July, killing more than 200 people, could also put a damper on economic activity.

Private consumption, accounting for more than half of Japan's GDP, was up 0.7 percent on quarter amid a rise in demand for automobiles and household durable goods.

"This still seems weak considering the increase in income we have been seeing and should strengthen further," Maruyama said.

Capital expenditure, which has seen steady growth amid a construction boom in the run-up to the 2020 Tokyo Olympics, rose 1.3 percent as companies ramped up spending on manufacturing equipment, heavy machinery and software.

Meanwhile, exports, a major driver of economic growth in past quarters, only grew 0.2 percent amid a fall in outgoing services such as shipping. Imports, which are subtracted from GDP, rose 1.0 percent.

Residential investment fell 2.7 percent, while government spending was nearly flat.

Unadjusted for inflation, the economy grew an annualized 1.7 percent. The nominal growth rate, which corresponds to a 0.4 percent expansion from the preceding quarter, fell below the real growth rate reflecting weak price gains.

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