From IMF paper (pdf) The Outlook for Financing Japan’s Public Debt, Jan 2010

Japan's economy got a sharp boost from Asian exports and rising consumer spending in the first quarter (Q1) of 2010.

The government reported Thursday that real (adjusted for prices) GDP (gross domestic product), grew at an annualised 4.9% rate during the first quarter, rising from the 4.2% pace in the final quarter of 2009. The first quarter performance compares with a 3.2% growth rate for the US, and an 0.8% rate for the Eurozone. Unadjusted for price changes, so-called nominal GDP rose 1.2% on a quarterly basis, the most in a decade but below consensus forecasts. Today's figures are subject to revision.

The national accounts report showed that private consumer spending, which accounts for more than half of Japan's GDP, rose for the fourth straight quarter at 0.3%, while corporate capital investment rose for the second straight quarter, supported by a 30.5% annualised surge in exports.

Overall, domestic demand added about 2.3 percentage points to GDP growth, and external trade  - - exports minus imports - - contributed 2.7 points.

Naoto Kan, Japanese finance minister, said the economic data “reflected a solid economic recovery” but he noted that Japan’s deflation must be addressed by the Bank of Japan, to sustain growth. Continued deflation dampens consumer spending.

Exports to Asia rose 12.3% in January-March from the previous quarter in seasonally adjusted terms and those to European Union gained 5.6% while shipments to the US fell 1.4%.

From a year earlier, first quarter real GDP grew 4.6% after -1.1% in Q4 2009, posting the first year-on-year rise in eight quarters since +1.2% in Q1, 2008.

The International Monetary Fund (IMF) this week urged Japan to start cutting its massive debt burden from next year.

It said Japan should start increasing consumption tax to tackle its gross debt, which at nearly 230% of GDP, is the highest of any industrialised nation.

The IMF said Japan's economic recovery should allow it to start introducing debt-reduction measures.

Along with tax measures, it said Japan should also contain its growth in spending.

"With global scrutiny of public finances increasing, the need for early and credible fiscal adjustment has become critical," said the IMF's First Deputy Managing Director John Lipsky after the organisation's annual visit to Japan.

About 95% of Japan's debt is funded locally at 10-year yields of about 1.3%. Its net debt - - after offsetting public pension funds  - - is about 115% of GDP.