Unexpectedly strong growth in the last quarter propelled Japan's economy once again into being a world leader, promising an end to 15 years in the doldrums when periodic economic revivals dissolved into false dawns.
The world's second biggest economy grew 1.4 per cent in the fourth quarter - far in excess of the 0.3 per cent growth recorded in the US and growth of 0.4 per cent in the European Union.
Japan's strong last quarter growth, exceeded market expectations and raised the 2005 annual growth rate to 2.8 per cent. More important for Japan, 2005 marked the third year of healthy economic growth, spurred by domestic spending.
With a stronger financial sector no longer crippled by bad loans, economists say Japan has the best chance since 1991 to sustain economic growth.
Japanese ministers have recently played down positive economic numbers for fear of appearing to support the case being made by some Bank of Japan officials for an end to the country's ultra-loose monetary policy. But late last week, Kaoru Yosano, the minister for the economy, changed tack, describing the figures as "very positive economic indicators."
Analysts said the numbers supported the view that Japan was finally emerging from years of stagnation.
The more sustainable nature of Japan's economic expansion in 2005 was demonstrated by the dominance of domestic influences over growth. Household consumption rose by 2.2 per cent, while non-residential business investment surged by 8.4 per cent. Net exports contributed only 0.2 percentage points to the 2.8 per cent annual growth rate.
But Japan has hurdles to jump before it can convince the world it has cured its economic malaise. The spectre of deflation has not yet been convincingly purged. Though the consumer price index has recently started rising, gross domestic product figures showed much of this rise was based on higher oil prices.
Rising Japanese growth has also done little to reduce the gaping global trade imbalances embodied in the US trade deficit. Imports have not begun to grow fast enough to reduce Japan's trade surplus. (FT Syndication Service)