Japan's economy grew at an annual rate of 5.5 per cent in the fourth quarter of last year - its best performance in three years - the government said yesterday after revising earlier estimates.

The government previously pegged growth at 4.8 per cent, still a substantial leap from the previous weak quarter's annualised growth of 1.2 per cent.

However, the more rapid growth is unlikely to change market expectations that the Bank of Japan, which holds a two-day policy meeting on March 19th and 20th, will be in no hurry to increase interest rates.

The solid performance was widely predicted, but helped push the Nikkei 225 average up 0.75 per cent to 17,292. Japanese stocks, hit hard by the recent global market turmoil, have gradually recovered thanks partly to continued yen weakness.

Following the Shanghai stock market's sharp declines, which triggered global falls, the yen strengthened from about Y120 to the dollar to nearly Y115. Yesterday, it was back down at about Y118.5, raising hopes that Japan's export boom could continue.

Kiichi Murashima, chief economist at Nikko Citigroup in Tokyo, said the early signs for the current quarter were good, with January data showing a promising recovery in consumption. A recent household survey showed spending up 0.6 per cent year-on-year, the first rise since December 2005. Mr Murashima said people might be spending more because of an effective but temporary Y3,000 billion (€19.3 billion) tax windfall.

Domestic consumption has been the main engine missing from the recovery, as exports and capital investment have continued to lead Japanese growth. In the December quarter, capital spending rose 3.1 per cent against the previous three months. - ( Financial Times service )