Gross domestic product in the three months ended March 31 was better than the 2.5 percent median estimate of 32 economists surveyed by Bloomberg. Fourth-quarter growth was revised to 2.6 percent from 3.5 percent, the Cabinet Office said today in Tokyo.
Today's figures came a day after Germany reported its economy expanded at the fastest pace in 12 years, resisting the U.S. slowdown. Japan's Nikkei 225 Stock Average has surged 21 percent in the past two months as companies including Matsushita Electric Industrial Co. forecast record profit.
From the fourth quarter, Japan expanded 0.8 percent, the fastest pace in a year. Figures yesterday showed Europe grew a more-than-anticipated 0.7 percent, led by the 1.5 percent expansion in Germany. The U.S. economy grew only 0.1 percent in the same period, and 0.6 percent on an annualized basis.
Net exports -- the difference between exports and imports -- accounted for most of Japan's growth, contributing 0.5 percentage point to the quarterly increase. Shipments overseas rose 4.5 percent and imports climbed 2 percent.
Residential investment rose 4.6 percent from the previous three months. Housing starts are recovering after plunging since June because of a permit logjam caused by government regulations designed to stop building fraud.
Consumer spending grew a more-than-expected 0.8 percent, even as higher prices and wage stagnation made households the most pessimistic in five years.
Prices of everyday goods rose at more than twice the pace of wages in March. Japanese workers are likely to see summer bonuses increase by the smallest amount since 2002, the Nikkei newspaper reported this week.
The risk of weaker growth prompted the Bank of Japan last month to shelve its policy of gradually raising interest rates. Governor Masaaki Shirakawa and his board are expected to hold the key rate at 0.5 percent, the lowest in the industrialized world, at the end of their next meeting on May 20 and most economists say borrowing costs will stay unchanged this year.
The higher cost of imports probably means that the real GDP growth rate overstates the strength of the economy. In nominal terms, which don't take into account price changes, Japan expanded 0.4 percent on the quarter, half the pace of real growth.