What do hedge fund managers and Japanese Liberal Democrat party politicians have in common? Both must have winced at Japan’s surprisingly strong gross domestic product data on Thursday. Investors with carry trade positions may fret that the days of yen weakness are over. The incumbent LDP, however, worries that rising rates will derail recovery before elections in April.

The headline figures certainly looked good. The 4.8 per cent annualised GDP growth rate for the fourth quarter of 2006 exceeded estimates by a full percentage point. Observers tend not to focus on the more relevant year-on-year comparison, but even this showed a solid 2.1 per cent growth, up from 1.5 per cent the previous quarter. Encouragingly, all cylinders were firing. Capital expenditure, consumption and exports were all up from the third quarter, although the export growth rate moderated a bit.