Retail sales in Japan rose above forecasts indicating a recovery in consumer spending which could help the country to attain economic growth this quarter.

The Ministry of Economy, Trade and Industry said that retail sales in Japan climbed an annual 1.9 percent in January. One major reason for this rise has been the increase in car sales. The government in a positive move had re-introduced a subsidy for buyers of energy efficient cars which caused the car sales to jump by 24 percent. Retail sales climbed 4.1 percent on a seasonally adjusted monthly basis.

This should be extremely positive report for Japan, which is badly affected by slow economic growth and deflation. Earlier it was reported that Japan’s economy, the third-biggest in the world, shrank an annualized 2.3 percent in the fourth quarter, more than analysts estimated, after growing 7 percent in the previous three months.

Prime Minister Yoshihiko Noda had said last month that he expected the Bank of Japan to take bold policy actions to address the yen’s rise and fight deflation. The Bank of Japan’s stated goal is for consumer prices to rise between above zero and 2 percent over the long term, with a 1 percent objective for the time being. The yen's strength and weaker global demand have eaten into profits of manufacturers. Also the nation is still in the process of recovering from last year's earthquake and tsunami.

Ratings Agency Standard & Poor's had previously noted that the government's weak policy foundations, large fiscal deficits and high debt, as well as prolonged deflation and an aging and shrinking workforce are constraints for its growth.