Weak GDI may tell truer story of Japan growth

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By Yoko Nishikawa

TOKYO, May 16 (Reuters) - Japan's economic growth picked up pace in the first quarter, expanding faster than expected and running above its potential, but a closer look at the data points to how companies have been suffering from soaring energy and raw material prices.

And some economists say the Bank of Japan will probably find it hard to justify a rate hike for a while as the economy's capacity to generate income weakens, with firms hurt by rising costs and exporters' profits squeezed by the yen's rise.

Japan's gross domestic income (GDI), which incorporates the impact of changes in the terms of trade on income, grew an annualised 0.8 percent in January-March, government data showed on Friday.

That was much lower than annualised growth of 3.3 percent in gross domestic product (GDP), on which economists and market players focus to gauge the health of the world's No. 2 economy.

That meant Japan's economy grew much faster than its potential growth rate, which the BOJ says is around 1.5 percent or somewhat higher now.

"We don't feel the benefit of such high growth. But why?" said Kyohei Morita, chief economist at Barclays Capital.

"One reason can be explained by the gap between the GDI and GDP," he said.