The expansion of Japan's economy by an annualized 1.7 percent in the January-March quarter beat market expectations and was a positive note for the government ahead of today's G7 finance ministers and central bank governor's meeting in Sendai. However, there are concerns that the recent Kumamoto earthquake might have an impact on the second quarter economy.

The first quarter GDP figures released Wednesday showed a higher than expected 1.7% expansion but the markets believe that the economy remains sluggish. More over, effects from the Kumamoto earthquake in Mid-April are likely to weigh on the 2nd quarter GDP.

Analysts also warn of a possible ripple effect from Europe in June. A British vote to leave the European Union and the Greek debt crisis could drive the Yen considerably higher once again.

"It is going to be a really risky period and Japan must endure the month of June before it can turn the economy around. If Britain leavesthe EU, and the Greece crisis continues, it is likely the yen will be bought and it could go as high as 105 yen to 102 yen to the US dollar," Independent analyst Itsuo Toshima said.

But all of the news is not negative. There are strong expectations for additional economic stimulus

"We can expect the government to come up with a stimulus package ahead of the election, and possibly postpone the sales tax hike next year. Adding to the BOJ's possible additional easing, it could drive the market toward lower currency and higher share prices. It will be a catalyst to improving the consumer and corporate minds,"  Toshihiro Nagahama, economist with Daiichi Life Research Institute, said.

Still, Japanese officials will be faced with an earlier challenge on Friday. That's as the G7 finance and central bankers gather in northern Japan with huge differences on currency and fiscal policies. Japan will be tasked with bridging the differences and will likely call for fiscal steps to boost global demand. Meanwhile, Germany is already expressing its reluctance for more spending,

"Japan is calling for the need for fiscal stimulus. But it is unlikely that an agreement will be met as some countries, such as Germany, are hesitant. It is unlikely that an agreement will be reached on a specific policies," Nagahama said.

Experts say the G7 financiers will likely settle on a vague agreement for the need to deploy a set of monetary, fiscal and structural policies

There are a lot of elements that will affect the markets in Japan this year. The outlook on the global economy, a possible BOJ expansion decision, timing for the U.S. Fed's possible rate increase and elections in Japan and US. Last but not least, there is the government's upcoming decision on whether to postpone a sales tax increase scheduled for April 2017. Experts say Japan's economic recovery will still be loaded with lingering deflationary pressures.