Japan's prospects have been improving on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm. The labour market is tight and business confidence is strong with firms investing more. But consumer spending remains tepid and efforts to lift inflation have fallen flat despite years of aggressive monetary easing by Japan's central bank. Private consumption picked up a modest 0.4 percent in the first quarter from zero growth in the previous three months. Individual spending accounts for more than a half of Japan's GDP.
"I can't give the 'all clear' yet," said Takeshi Minami, chief economist at Norinchukin Research Institute in Tokyo. The latest reading nonetheless means Japan's economy has had its longest string of gains since 2006, during the tenure of popular former prime minister Junichiro Koizumi. The figures are good news for the current prime minister Shinzo Abe - whose brief and underwhelming first term as Japan's premier came directly after Koizumi.
A string of short-term leaders followed before Abe swept back to power in late 2012 on a pledge to reignite Japan's once-booming economy with a plan dubbed Abenomics. The scheme - a mix of huge monetary easing, government spending and reforms to the economy - stoked a stock market rally and fattened corporate profits. But there has been growing criticism about the plan's muted impact on the wider economy.
Still, the Bank of Japan and International Monetary Fund both recently lifted their projections for the country's growth rate. An improving global outlook with strong demand for Japanese smartphone parts, memory chips and construction machinery has also been a tailwind, analysts said.
"With growing external demand set to continue, we believe there will be the need for many companies to replace machinery and equipment," Katsunori Kitakura, lead strategist at asset manager Sumitomo Mitsui Trust Group, said before Thursday's GDP figures were released. The Bank of Japan (BoJ), aiming to achieve two-percent inflation as a key part of Tokyo's growth bid, now expects to reach that goal by 2019 - four years later than planned.