Japan’s economy grows faster than expected in Q4 on strong capex

TOKYO: Japan’s economy expanded an annualised 2.8 per cent in the October-December quarter, government data showed on Monday (Feb 17), backed by improved business spending and better-than-expected consumption.

Strong domestic demand is helping support a recovery in the world’s fourth-largest economy, even as US President Donald Trump’s tariff threats fuel concerns about the export outlook.

The positive figures will also likely support the Bank of Japan’s plan to keep hiking interest rates and normalise monetary policy.

“Even though the jump in (fourth-quarter) GDP wasn’t broad-based, it supports our view that the Bank of Japan will tighten policy more aggressively this year than most anticipate,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.

The increase in gross domestic product compared with a median market estimate of a 1.0 per cent gain in a Reuters poll, and followed a revised 1.7 per cent growth in the previous quarter.

The reading translates into a quarterly rise of 0.7 per cent, better than the median estimate for a 0.3 per cent uptick.

Private consumption, which accounts for more than half of economic output, rose 0.1 per cent, compared with a market estimate of a 0.3 per cent fall.

A surprise positive reading in consumption is attributed to large year-end bonuses, said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “It may slip again in January onwards as the underlying trend remains weak amid rising prices of food,” he said.

Uichiro Nozaki, economist at Nomura Securities, said the overall GDP figure was flattered in part by a decrease in imports, which improved the net trade contribution to growth.

Consumption and wage trends are key factors the BOJ is watching to gauge economic strength and determine the need for additional rate hikes.

While the latest wage and household spending indicators showed encouraging signs, analysts have been wary of price pressures hindering a full-fledged recovery in personal consumption.

Capital spending, a key driver of private demand-led growth, rose 0.5 per cent in the fourth quarter, missing a market estimate of a rise of 1.0 per cent in the Reuters poll but reversing a decline in the previous quarter.

Net external demand, or exports minus imports, contributed 0.7 of a point to growth, reversing a negative contribution in the July-September period.