Japan Grows in the First Quarter but Could Use More Stimulus

Japan's economy expanded by 1.7% during the first quarter, reversing a 1.7% contraction during the fourth quarter of 2015, but one analyst thinks the economy needs additional assistance from central bankers.

Economists had expected a 0.3% increase in first-quarter GDP.

"Japan, much like Europe and other parts of the world outside the U.S., continues to improve," said Sameer Samana, global quantitative strategist at Wells Fargo Investment Institute. "We're not focused on any one quarter -- what we're looking for is the underlying trend for growth."

Samana said the Bank of Japan"needs to do more" to lift economic growth, as business investment slumped 1.4% during the first quarter, raising questions about the effectiveness of a spending stimulus program employed three years ago by Prime Minister Shinzo Abe.

"If you look at what the yen has done, it has strengthened quite a bit," Samana said.

This is something central bankers in Japan were hoping to avoid when they pushed interest rates into negative territory back in February. Negative rates incentivize banks to lend money. A stronger currency makes Japanese companies less competitive overseas.

But some remain skeptical about negative rates. Interest rates were pushed further into negative territory in Europe back in March, but European Central Bank President Mario Draghi has said there are limits as to how far into the red rates can go.

"At some point, markets start to question the credibility" of central banks, Samana said. While it may seem as though the Bank of Japan is out of options, he said, it consistently assures markets there are more measures to take, such as expanding asset purchases.

Japan's benchmark stock index, the Nikkei, closed slightly lower on Wednesday, falling 0.05%.