Japan’s economy showed unexpected resilience in the October-December quarter, with an annualized growth rate of 0.4%, according to revised government data released on Monday. This figure surpassed the initial estimate, which had projected a 0.4% contraction. Economists had forecasted a 1.1% increase, making the actual performance even more impressive.
This upward revision means Japan narrowly avoided slipping into a technical recession, largely due to stronger-than-expected spending by companies on plants and equipment. On a quarter-on-quarter basis, GDP expanded by 0.1%, a significant improvement from the initial reported 0.1% decline.
Capital expenditure notably increased by 2.0% quarter-on-quarter, surpassing the earlier government announcement of a 0.1% decrease. However, this growth fell slightly short of the median market forecast of a 2.5% rise.
The revision coincided with growing speculation in the market that the Bank of Japan (BOJ) might abandon its negative interest rate policy, potentially as early as this month. Recent hawkish comments from some BOJ board members, indicating progress towards the central bank’s 2% inflation target, have fueled these expectations. The BOJ is scheduled to convene a two-day policy-setting meeting on March 18-19.
Despite the overall positive economic performance, private consumption, which constitutes about 60% of Japan’s economy, declined by 0.3% in the October-December period. This figure was slightly worse than the initial estimate of a 0.2% drop. Additionally, recent data has shown a persistent decline in inflation-adjusted real wages and household spending, indicating ongoing challenges in the domestic economy.
However, external demand remained a bright spot, contributing 0.2 percentage points to real GDP, consistent with the preliminary reading.