Japan's real gross domestic product (GDP) in the first quarter of 2010 grew 1.2 percent, or an annualized 4.9 percent, from the previous quarter, marking the fourth consecutive quarter of growth. Nominal GDP, which is said to better reflect people's true feelings about economic conditions, also grew 1.2 percent (annualized 4.9 percent), the second straight quarterly rise.

External demand pushed up real GDP 0.7 percent and domestic demand 0.6 percent. Exports increased 6.9 percent, more than the 5.8 percent posted the previous quarter, driven by exports to Asian markets including China. Consumer spending, which accounts for about 60 percent of GDP, rose 0.3 percent — for the fourth straight quarterly rise. It will be important for the government and the Bank of Japan to push policies that attain growth while balancing external and domestic demand.

Public works investment slipped 1.7 percent, the third straight quarterly decline. But capital investment grew 1 percent, up for the second consecutive quarter. Housing investment rose 0.3 percent, the first rise in 15 months.

Growth in consumer spending has been helped by government measures to subsidize consumers who purchase eco-friendly products. Since the measures are due to expire by the end of fiscal 2010, consumer spending might tumble. Unemployment is still relatively high (5.1 percent in April) and basic salaries of workers have been decreasing. There is also the risk that exports will stall as the governments of emerging economies try to slow down overheated economies.

To help put the economy on a path to sustainable recovery, the government must pursue policies that encourage companies to increase capital investment inside Japan that will lead to technological innovation and bolster labor productivity.

The government should also offer incentives to increase investment in industries related to health, the environment and tourism. Reform of medical services, nursing care and pension systems will also be necessary to help people loosen their purse strings.