Japan's economy, the third-largest in the world, has registered the quickest growth in a year, pointing to economic recovery, as the government stepped up public works spending and eased credit to encourage investment.

The data for January to March showed the economy grew 0.9 percent on a quarterly basis or 3.5 percent on an annualised basis, as Japan inched its way out of recession.

The data were seen by some observers as an early indication of success for Prime Minister Shinzo Abe's bid to stimulate the long-stagnant economy with a policy prescription of big government spending and aggressive central bank easing.

His policies have helped push share prices to their highest levels in over five years, fueled by strong liquidity and expectations of improved profitability for listed companies.

Abe has called on the nation's employers to hike their employee pay to stimulate spending.

The benchmark Nikkei 225 stock index rose to 15,139.56 early on Thursday before falling back slightly on profit taking. It has gained about 75 percent since November in a rally linked to high hopes for Abe's policies, which have been dubbed "Abenomics".

A sharp decline in the value of the Japanese yen, brought on both by monetary easing and by expectations of further easing, has helped some exporters and provided a windfall in yen terms for companies repatriating overseas earnings.

"The Japanese economy is on the right track to recovery," said Hideki Matsumura, senior economist with the Japan Research Institute.

"Individual spending is picking up as the value of assets, including stocks, rose on the back of the brighter economic outlook. Exports are also recovering.

"The economy is expected to grow further for now thanks to the impact of Abenomics."

A 0.7 percent drop in capital spending highlighted still-weak spending by firms, while a series of tax hikes aimed at doubling the national sales tax to 10 percent by 2015 could also hit private spending, analysts said.

Source: Agencies