Japan’s Economy Shows Resilience: GDP Growth Revised Upward

New government data unveiled on Monday revealed that Japan’s economy expanded at an annualized rate of 0.4% in the October to December period, surpassing initial estimates of a 0.4% contraction. This positive revision in gross domestic product (GDP) defied economists’ expectations, who had forecasted a modest 1.1% increase.

The revised figures underscored Japan’s ability to dodge a technical recession, positioning it as the world’s fourth-largest economy, trailing behind Germany. This resilience was attributed to companies ramping up spending on plants and equipment beyond initial projections.

Quarter-on-quarter GDP growth also saw an improvement, registering a 0.1% expansion compared to the initial 0.1% decline. Despite a median forecast anticipating a 0.3% rise, the actual figures still marked progress.

Capital expenditure notably outperformed expectations, surging by 2.0% quarter-on-quarter, a significant improvement from the previously announced 0.1% decrease. However, this figure fell short of the market’s median forecast of a 2.5% increase.

This upward revision coincides with mounting anticipation in the market regarding potential shifts in the Bank of Japan’s monetary policy, particularly the abandonment of negative interest rates. Recent hawkish comments from board members, suggesting progress toward the central bank’s 2% inflation target, have fueled such speculations.

The Bank of Japan’s upcoming two-day policy-setting meeting scheduled for March 18 and 19 will be closely watched for any announcements regarding monetary policy adjustments.

However, challenges persist within Japan’s domestic consumption sector, which accounts for approximately 60% of the economy. Private consumption experienced a 0.3% decline in the October to December period, slightly worse than the initial estimate of a 0.2% drop.

Furthermore, recent economic indicators have painted a mixed picture. January witnessed a 22nd consecutive month of inflation-adjusted real wage reduction, coupled with the largest year-on-year household spending decline in 35 months.

Despite these internal struggles, external demand remained a positive contributor, adding 0.2 percentage points to real GDP, consistent with the preliminary reading.

In summary, Japan’s economy has demonstrated commendable resilience, with GDP growth outpacing initial estimates and showing signs of improvement in capital expenditure. However, challenges persist in domestic consumption, requiring continued attention from policymakers amid evolving economic dynamics.