Japan's Q4 GDP revised up, economy avoids recession

Japan GDP growth: Revised government data on Monday, March 11, suggested that Japan's economy skirted a technical recession, signalling a slight expansion in the fourth quarter, albeit weaker than expected. The updated figures underscore lingering concerns about the pace of economic recovery in the country.

Japan's revised gross domestic product (GDP) expanded at an annualised rate of 0.4 per cent in the October-December period compared to the previous quarter, surpassing the initial estimate of a 0.4 per cent contraction, as reported by the Cabinet Office.

However, this figure fell short of economists' median forecast of a 1.1 per cent uptick in a Reuters poll.

On a quarter-on-quarter basis, GDP showed growth of 0.1 per cent, contrasting with the initial reading of a 0.1 per cent drop and a median forecast for a 0.3 per cent rise.

"While the headline shows an upward revision, domestic demand remains lackluster, especially in consumption," remarked Saisuke Sakai, senior economist at Mizuho Research and Technologies.

The upward revision comes amid increasing market expectations that the Bank of Japan (BOJ) could move away from its negative interest rates, potentially as soon as this month. This speculation has been fueled, in part, by recent hawkish comments from BOJ board members suggesting that Japan is inching closer to the central bank's 2 per cent inflation target.

Capital expenditure, which saw a 2.0 per cent quarter-on-quarter increase, anchored the upward revision, surpassing the preliminary 0.1 per cent decrease but falling short of the median market forecast of a 2.5 per cent rise.

Private consumption, constituting about 60 per cent of Japan's economy, declined by 0.3 per cent in the October-December period, slightly worse than the initial estimate of a 0.2 per cent drop. Factors such as seafood and household appliances contributed to the downward pressure in this category, noted a Cabinet Office official.

External demand contributed 0.2 percentage points to real GDP, remaining unchanged from the preliminary reading.

Looking ahead to the current January-March quarter, the Japanese economy could contract, considering the slowdown in the Chinese economy, production halts at a unit of Toyota Motor Corp (7203.T), and weak consumption, according to Sakai.

Looming BOJ decision

Despite the pockets of weakness evident in the data, the BOJ is anticipated to abandon negative interest rates by next month, citing the growing prospect of substantial pay hikes in annual wage talks with labor unions, said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

"The Bank of Japan tends to prioritise its consumption activity index and doesn't seem particularly concerned about the recent sluggishness in activity," Thieliant added.

The BOJ is scheduled to convene a two-day policy-setting meeting on March 18-19.

Japan's largest trade union confederation, Rengo, has demanded pay rises of 5.85 per cent this year, exceeding 5 per cent for the first time in 30 years.

The Japanese central bank has long maintained that robust wage growth is a prerequisite for rolling back more than a decade of radical monetary policy experiments.

Japan witnessed inflation-adjusted real wages shrinking for the 22nd consecutive month in January, while year-on-year household spending in the same month marked the biggest drop in 35 months.