Japan said on Wednesday (20 May) the country's economy expanded at its fastest pace in a year in the January-March quarter but growth was inflated by inventory as business investment failed to gather momentum, keeping alive expectations for more monetary stimulus later this year.

"Growth on a yearly basis posted 2.4 percent. That's two quarters of positive growth," Economics Minister Akira Amari said at the news conference in Tokyo.

"The factors behind this is growth in private sector demand such as consumer consumption, capital investment, housing investment, and growth in exports thanks to a gradual recovery in overseas economies," he said.

Amari said while the economy is seen recovering moderately, some weakness remained in capital expenditure as companies remained cautious of spending their abundant cash. Amari also warned of risk factors further down the line.

"We believe we can look forward to a gradual recovery in the economy thanks to an improvement in the employment and income environment, effects of the drop in crude oil prices and that of various policies. However we need to remain vigilant to possible stagnation in overseas economies and other factors to push growth down," he said.

"The overseas risks include Greece in the European Union, and how their relationship will stabilise and China, where growth there seems to have weakened and how that will stabilize. Those are the factors we need to be vigilant about."

The world's third-largest economy expanded an annualised rate of 2.4 percent in the first three months of this year, more than the median market forecast for a 1.5 percent increase and following a revised 1.1 percent expansion in October-December, data from the Cabinet Office showed.

The annualised increase in gross domestic product (GDP) topped a 0.2 percent gain in the US and 1.6 percent growth in the euro zone in the January-March quarter.

The data will be closely scrutinised at the Bank of Japan's two-day rate review that ends on Friday (22 May). The central bank is widely expected to maintain its massive stimulus programme and rosy assessment of the economy.

More about Japan
Japan