Japan’s Economy Expands Slightly in Q4, Avoiding Technical Recession
Japan’s economy displayed a modest growth rate of 0.4% on an annualized basis during the October to December quarter, according to recently released data from the Cabinet Office. This figure surpassed the preliminary estimate indicating a 0.4% contraction, marking an essential improvement for the world’s fourth-largest economy.
The revised figure for Gross Domestic Product (GDP) differed from economists’ median forecast of a 1.1% increase in the Reuters poll. Nevertheless, this data allowed Japan to skirt a technical recession. The primary reason for this positive outcome was companies’ robust spending on capital expenditures, which exceeded expectations.
Capital expenditure surged by 2.0% on a quarter-on-quarter basis, contrasting the preliminary 0.1% decline reported earlier. However, this figure fell short of the median market prediction calling for a 2.5% rise.
The upward revision in the GDP data came amid burgeoning market speculation that the Bank of Japan (BOJ) might abandon negative interest rates as soon as this month. These expectations were fueled in part by recent hawkish remarks made by BOJ board members, implying that Japan was moving closer to the central bank’s target 2% inflation rate.
The BOJ is scheduled to hold a two-day policy-setting meeting on March 18 and 19.
Despite this encouraging news, private consumption – which constitutes approximately 60% of Japan’s economy – recorded a decline of 0.3% during the October to December quarter. Although this figure was only slightly worse than the initial estimate showing a 0.2% drop, it highlighted ongoing challenges for Japanese households.
Japan experienced deflation-adjusted real wages shrinking for the 22nd consecutive month in January, while household spending in the same period recorded its most significant year-on-year decline in 35 months.
External demand added 0.2 percentage points to real GDP, remaining unchanged from the preliminary reading.
