Consumers put Japan back on growth path Japan's consumers are stirring once more. At Yamanakoko, a resort town near Mount Fuji, bookings plunged after the earthquake and tsunami last March but are now exceeding pre-disaster levels, says Naoki Takakamura, who runs a lakeside budget guesthouse catering almost entirely to domestic tourists. "If things continue like this then we will be OK, at least in the short term," he says. Private consumption has long been the steady engine of Japan's economy, accounting for 71 per cent of gross domestic product in 2010. But last year the engine sputtered, as consumers put discretionary spending on hold after the disasters, responding to a national mood of restraint. Now, though, a release of "pent-up demand" is evident, says Masamichi Adachi, economist at JP Morgan in Tokyo. People feel the situation has normalised, after the tragedy. They're buying things again, going out sight-seeing, eating at better restaurants. That shift was clear in figures released on Thursday showing that Japan grew by 1 per cent in the first three months of the year, after a flat fourth-quarter of 2011, largely because of an increase in private consumption of 1.1 per cent. It helped to offset subdued exports and steep falls in corporate spending. Public investment made another important contribution, up 5.4 per cent, as developers broke ground on reconstruction projects in the stricken stricken northeast coast. But few analysts expect Japan to repeat the surprisingly strong growth in the rest of the year as spending incentives are withdrawn, which will hit consumption, and the global slowdown gathers pace. The first quarter had a benign backdrop of a strong stock-market and a weak currency, which may account for rare across-the-board rises in all four categories of consumer spending, from durable goods which were up 7.4 per cent to services that grew 3.6 per cent. But since mid-March stocks have tumbled and the yen has clawed back a lot of the ground it lost against the dollar amid renewed fears over the eurozone. That is beginning to hurt consumer sentiment, says Takehiro Sato, economist at Morgan Stanley in Tokyo. Others agree that while an annualised growth rate of 4.1 per cent is striking - more than three times better than the real average growth forecast in the G10 economies this year - Japan is unlikely to keep it up. Exports remained brittle in the first quarter, rising 2.9 per cent from a 3.7 per cent fall in the fourth quarter, when flooding in Thailand hit shipments of cars and electronics. And the impact of the total shutdown of nuclear power generation may also weigh on industrial production, as electricity supplies fall short of demand in the peak power-consuming months ahead. Another factor weighing heavily on expectations for consumer spending is that some stimulus measures introduced in the wake of the disasters are scheduled to be withdrawn. Perhaps a third of the first-quarter growth in private consumption was due to the reintroduction of government incentives to buy fuel-efficient cars, estimates Daiju Aoki, economist at UBS in Tokyo. Those incentives are due to expire in August. Summer bonuses, paid out of last year's quake-hit profits, are likely to disappoint too, notes Mr Adachi of JP Morgan. Fears over slowing growth may encourage politicians to keep pushing the Bank of Japan to add more monetary stimulus, perhaps as early as its policy board meeting next Wednesday. For now, though, the reanimated consumer is cheering the likes of Nissan Kiko, a small manufacturer of product packing equipment in the western city of Kyoto, which returned to profit in the year to March after three years of red ink. "Up to June orders are solid," says Noboru Yamashita, a company director and former president. For the moment, things are looking fine.