Japan eased out of recession in the last quarter of 2012, with modest growth analysts said Friday underpins a strengthening economy, as the government and central bank up their fight against deflation.
The 0.2 percent expansion on an annualised basis in the three months to December will be welcome news for Prime Minister Shinzo Abe, whose first few months in office have seen renewed optimism over the world's third largest economy.
The economy had shrunk for two consecutive quarters from April through September as export demand weakened on the back of financial turmoil in the key European market, a strong yen and a diplomatic row with China.
Adding to the upbeat sentiment Friday was a 2.64 percent surge in the benchmark Nikkei 225 index, taking it to levels not seen since before the 2008 collapse of Lehman Brothers that heralded the global economic crisis.
Abe's mantra since being swept to power in December has been one of pumping life into a flaccid economy and turning around 15 years of growth-sapping inflation, while announcing huge debt-funded spending packages.
The country has seen a mixed bag of economic data lately, with the unemployment rate edging down to 4.2 percent in January and deflation doggedly persisting, while industrial output showed a modest rise of 0.1 percent in January from the previous month.
In January, Japan also posted its third straight deficit in the current account, the broadest measure of trade with the rest of the world, showing it was 364.8 billion yen ($3.8 billion) in the red for the month.
However, the yen has weakened by almost a fifth since November on expectations the Bank of Japan would adopt an aggressive monetary easing policy, helping make the nation's exporters more competitive and boosting their latest earnings results.
Abe has heaped pressure on the central bank, threatening to change the law guaranteeing its independence if it did not fall into line.
Last month he nominated Asian Development Bank head Haruhiko Kuroda, an advocate of aggressive easing measures, to take the helm at the Bank of Japan, after Masaaki Shirakawa stepped down early following repeated policy clashes with the premier.
Abe also unveiled a massive spending plan in January that he says will boost gross domestic product by two percentage points and create 600,000 jobs.
Hideki Matsumura, economist at Japan Research Institute, said the GDP figure Friday "confirmed that the Japanese economy has hit bottom and started picking up".
"Thanks to measures introduced by the Abe administration, Japan is likely to show stronger recovery from now. Nearly all factors are pointing to the positive," he said.
Yasuo Yamamoto, senior economist at Mizuho Research Institute, said the numbers "show that the bottom of the latest recession was probably in November".
"Looking at the latest trade data, I would say recovery in exports will still be slow in the January-March quarter, so GDP growth in the same quarter would be also modest," he said.
"The question is when the effects from public spending in the government's stimulus package will appear, and I think it will be probably in the April-June quarter," he said.
Together with a positive impact from a weak yen, which should visibly boost demand for Japanese exports from around July, "Japan will be able to achieve a real GDP growth of two percent for fiscal 2013" starting April, Yamamoto said.
Japan logged its worst ever monthly trade deficit of 1.63 trillion yen ($17 billion) in January despite an upturn in exports, as the yen's recent sharp drop pushed fuel costs higher, finance ministry data showed last month.
And the latest ministry data on Friday showed Japan posted a trade deficit of 935.79 billion yen ($9.87 billion) in the first 20 days of February, the gap more than 12 times a 74.49 billion yen deficit in the same period the previous year.