Japan's economy grew an annualized real 1.6 percent in January-March, the first expansion in three quarters, aided by strong private consumption and an inbound tourism recovery in a fresh sign the impact of the COVID-19 pandemic is waning, the government said Wednesday.

Despite the stronger-than-expected reading for gross domestic product, the total value of goods and services produced in a country, the data showed exports plunged and the economy fell into a technical recession of two consecutive quarters of negative growth late last year.

Photo taken Feb. 25, 2017, from the roof of the Roppongi Hills building complex shows Tokyo's Shinjuku area, the Japanese capital's subcenter. (Kyodo) ==Kyodo

Real GDP, adjusted for inflation, increased 0.4 percent from the October-December quarter. In fiscal 2022, the world's third-largest economy expanded 1.2 percent in real terms, marking the second straight year of growth.

The result beat the average market forecast of an annualized 1.1 percent expansion for January-March expected by economists in a Japan Center for Economic Research survey.

"The good news is the economy was technically in a recession last year but rebounded in January-March. The return of inbound tourism is expected to support the economy even when we expect slowing growth in exports to the United States and Europe," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

Real GDP was down 0.01 percent in October-December, following a 0.2 percent contraction in the previous quarter.

"Rising prices have had a negative impact on consumers. The hope is that wages will rise this year and inflation will also start decelerating, which will support private consumption," Kodama added.

Private consumption gained 0.6 percent as demand for cars and durable goods was strong and consumers ramped up spending on services such as dining out. It was the fourth straight quarterly gain.

Capital spending increased 0.9 percent, helped by increased car-related investments, marking the first gain in two quarters.

Still, exports marked the sharpest fall in about three years, clouding the outlook for the economy amid aggressive interest rate hikes in the United States and Europe where central banks are seeking to curb demand to fight soaring inflation.

Exports dropped 4.2 percent, hurt by slumping shipments of cars and machinery to produce chips, while imports fell 2.3 percent.

Public investment was almost flat.

The government has been reducing utility bills for households but inflation has remained well above the Bank of Japan's 2 percent target for a full year.

The Japanese central bank is in no hurry to raise interest rates, though, bucking the global trend of monetary policy tightening. The BOJ argues most price gains can be attributed to rising import costs, not stronger demand.

With the best outcome in about three decades of the "shunto" annual wage negotiations between labor unions and management expected for the current fiscal year, both Prime Minister Fumio Kishida and BOJ Governor Kazuo Ueda are keeping tabs on whether the momentum will be sustained.

Nominal GDP increased 1.7 percent, or at an annual rate of 7.1 percent, the largest gain since the July-September quarter of 2020.