Japan's feelgood factor is spreading to consumers

IMF officials conducting an annual review of Japan's economy said growth could reach 4% this year, up from an original forecast of 3.4%.

They cited evidence that Japan's export-led recovery is now feeding through to domestic demand.

"There are encouraging signs that the recovery is broadening," the IMF said.

The IMF's comments will shore up confidence in Japan's economic rebound, which comes after ten years of stagnation punctuated by outright recession.

Pushing forward

Earlier this week, official data showed that the Japanese economy, the world's second biggest, grew by 1.4% in the first three months of the year, its eighth consecutive quarter of expansion.

Should growth continue at its current pace, then Japan's economy is on track for annual growth of 5.6%.

On Thursday, the Bank of Japan issued a cautiously upbeat economic outlook report, saying it expected a further "gradual" improvement this year.

The IMF urged Japanese policymakers to accelerate the recovery by tackling bad loans in the banking sector, privatising the postal system and reducing trade barriers.

It gave its seal of approval to the Bank of Japan's ultra-loose monetary policy, aimed at eliminating deflation - where falling prices choke off consumer spending and curb economic growth.

The Bank has kept short-term interest rates effectively at zero by ensuring that commercial banks have easy access to cash.