(Bloomberg) — Japan’s economy expanded in the last quarter of 2024 at a slower pace than reported in preliminary data, a result that may give the Bank of Japan added incentive to hold policy settings steady when authorities gather next week.
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Gross domestic product grew at an annualized pace of 2.2% in the final three months of last year from the previous quarter, the Cabinet Office reported Tuesday. The result came in lower than the preliminary estimate of 2.8% as inventories sank more than forecast and consumption came in weaker. Economists had expected the revision to be largely unchanged.
The yen briefly weakened to 147.10 against the dollar following the release, before fluctuating again following overnight global market falls.
Separate figures showed households spent much less than expected in January as the impact of elevated inflation continues to bite.
The revised GDP figures highlight pockets of weakness in the Japanese economy even as it continues to expand moderately overall. A slowdown in spending by households may prompt the central bank to be more cautious as it looks for opportunities to keep dialing back easy monetary settings with gradual rate hikes. The BOJ will deliver its next policy decision on March 19.
“Consumer spending is likely to stay weak into this quarter as households face inflation,” said Taro Saito, the head of economic research at NLI Research Institute. Still, “this data alone probably won’t alter the BOJ’s view that there’s a moderate economic recovery underway. The central bank will remain on the course of gradual normalization.”
A majority of economists surveyed in January expected the BOJ to raise its benchmark interest rate in July. BOJ Deputy Governor Shinichi Uchida signaled last week that the benchmark interest rate remains on a gradual upward path.
As in the initial estimate, net trade and business spending led the expansion, while private consumption was flat. That underscores the fragility of Japan’s economic growth, given the growing risks from US President Donald Trump’s tariffs policy. Net exports last quarter also grew mainly on the back of falling imports, another reason not to be too optimistic about the state of trade.
Going forward, the pace of economic growth is expected to slow, according to analysts surveyed by Bloomberg. On the domestic front, one key point is whether consumer spending, the biggest component of GDP, can keep expanding as households try to cope with rising costs of living.
What Bloomberg Economics Says…
“The downward revision to Japan’s fourth-quarter GDP doesn’t change the bigger picture from the solid preliminary data. The weaker growth reading was led by a steeper drop in inventory, which tends to be volatile and doesn’t say much about fundamentals.”
— Taro Kimura, economist
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In January, household spending rose 0.8% from a year earlier, missing a consensus estimate of 3.7% growth. Consumption fell in most months over the last two years as shoppers reacted to persistent inflation — and sliding real wages — by cutting back on discretionary spending. Monday’s wage report showed that even with solid gains in base pay, real wages retreated by 1.8% in January from a year earlier.
Prime Minister Shigeru Ishiba is watching domestic demand figures closely as he and his Liberal Democratic Party prepare for a national election this summer. A poor showing by the party in an October poll weakened his position, and his predecessor stepped down in part due to voter frustration over inflation.
His government has introduced several price relief measures, including the release of emergency rice stockpiles after prices for the grain surged.
Uncertainties are mounting with respect to trade prospects as Trump continues with his tariff campaign. Commerce Secretary Howard Lutnick signaled on Sunday that he expects no reprieves on 25% tariffs for steel and aluminum imports set to take effect Wednesday, and the White House may also impose tariffs of around 25% on automobile, semiconductor and pharmaceutical imports as early as April 2.
Higher levies, especially against Japanese cars shipped to the US, would likely deal a blow to the Japanese economy. This week the nation’s trade minister doubled down on a request for Japan to be excluded from Trump’s tariff campaign in his first in-person discussions with his US counterparts, but Tokyo didn’t get any immediate confirmation of a reprieve.
“Depending on the details of Trump’s auto tariffs, Japan could be directly impacted by a slowdown in external demand,” said Yuhi Kawano, market economist at Mizuho Securities. “This could put downward pressure on the Japanese economy from April onward.”
–With assistance from Erica Yokoyama.
(Updates with economist comments, more details.)
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