Japan's economy expanded 1.0 percent in 2016 as a bump in exports and capital investment offset weak spending at home, data showed Monday, although it was unlikely to erase concerns about Tokyo's faltering war on deflation.

The gross domestic product (GDP) data showed four consecutive quarters of growth -- the longest expansion since 2013 -- but the annual figure was lower than the 1.2 percent growth registered in 2015, according to the Cabinet Office.

Government spending measures and a drop in the yen were key growth drivers, even as Japanese consumers kept a tight lid on spending.

"This is really an export-driven recovery we're talking about," said Izumi Devalier, chief economist at Merrill Lynch Japan Securities.

"Private consumption has been pretty weak still, and unless we get private consumption fired up, it’s hard to see growth accelerating very strongly from here."

Japan's once-booming economy has suffered from years of deflation, which can discourage spending by consumers as they postpone purchases until prices drop further or just save their money, creating further pressure on businesses.

Doubts have been growing over Japanese leader Shinzo Abe's "Abenomics" -- a mix of massive monetary easing, government spending and red-tape slashing -- with growth still fragile and inflation well below target.

But exporters have benefited from the fall of the yen -- which boosts their profitability -- since Donald Trump's November US presidential election victory.

The yen has lost about 10 percent of its value against the dollar since the poll as traders bet Trump's planned infrastructure spending and tax-cuts will drive growth in the world's top economy and perk up inflation, in turn pressuring the US central bank to ramp up interest rates.

During the fourth quarter, Japan's exports grew 2.6 percent, building on an expansion in the previous three months.

Businesses appeared to be feeling more confident as capital spending grew 0.9 percent, reversing a decline in the previous quarter.

"In the latter half of 2017, the growth rate is likely to pick up pace," Takuji Aida, Tokyo-based chief economist at Societe Generale, said in a commentary.

But private spending, which accounts for more than a half of Japan's GDP, declined as the weaker yen boosts the cost of imports, which threatens to put a further squeeze on spending, said Marcel Thieliant at Capital Economics.

"We expect the yen to weaken further towards 130 by the end of this year, which will result in a surge in prices of imported goods and undermine households’ purchasing power," he said.

The dollar was buying 113.91 yen in Asian trading on Monday morning.

Meanwhile, Trump's protectionist rhetoric has raised concerns about Japan's economic prospects.

Trump has previously accused Japan of devaluing the yen to boost exports, grouping it with other countries which he says are taking "advantage" of the United States.

But the new US president dropped his previously harsh rhetoric towards Tokyo in a cordial summit with Abe over the weekend.

source: AFP