By Satoshi Sugiyama
TOKYO (Reuters) – Japan's economy avoided a technical recession, revised government data showed on Monday, although the fourth quarter's upward trend was weaker than expected, highlighting concerns about the sluggish economic recovery.
Japan's revised gross domestic product (GDP) grew 0.4% annually in the October-December period compared to the previous quarter, above the initial estimate of a 0.4% decline, according to the Cabinet Office.
But it was below the average forecast of economists, which was for a 1.1% rise in a Reuters poll.
Quarter-on-quarter, GDP grew 0.1%, compared with the initial estimate of a 0.1% decline and an average forecast of a 0.3% increase.
“The headline is an upward revision, but domestic demand remains weak, particularly in consumption,” said Saisuke Sakai, senior economist at Mizuho Research and Technologies.
The upward revision came amid growing market expectations that the Bank of Japan could end its negative interest rates as early as this month, driven in part by recent hawkish comments from board members that Japan was moving closer to the central bank's 2% inflation target.
Capital expenditure, which rose 2.0% quarter-on-quarter, formed the basis for the upward revision. It was better than better than the preliminary 0.1% decline, but still below the average market forecast of a 2.5% rise.
Private consumption, which accounts for about 60% of Japan's economy, fell 0.3% from October to December, slightly sharper than the 0.2% decline in the original estimate. Seafood and household appliances contributed to downward pressure in the category, a Cabinet Office official said.
Foreign demand contributed 0.2 percentage points to real GDP, remaining unchanged from the preliminary value.
In the current January-March quarter, the Japanese economy may suffer a contraction after taking into account the slowdown in the Chinese economy and halting production at one unit Toyota Motor (NYSE:) Corp and weak consumption, Sakai said.
Impending BOJ decision
Despite weaknesses evident in the data, the BOJ is likely to abandon negative interest rates by next month, citing a growing prospect of sharp wage increases in annual wage negotiations with unions, said Marcel Thieliant, head of Asia Pacific at Capital Economics .
“The Bank of Japan tends to place more emphasis on its own consumption activity index and does not seem particularly concerned about the recent economic slowdown,” Thieliant said.
The Bank of Japan is scheduled to hold a two-day policy-setting meeting on March 18 and 19.
Japan's largest trade union federation, Rengo, has called for wage increases of 5.85% this year, exceeding the 5% mark for the first time in 30 years.
Japan's central bank has long argued that robust wage growth is a prerequisite for reversing a decade-long radical monetary experiment.
In Japan last week, inflation-adjusted real wages fell for the 22nd straight month in January, while year-on-year household spending in the same month marked the sharpest decline in 35 months.
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