- Japan’s Q4 GDP grows 0.6% annualized vs. +2.0% exp.
- Decline in capital spending, inventory behind weaker than expected recovery
- The data underscores the view that Japan is recovering from the pandemic with a delay
- Growth prospects, wages are key to how quickly BOJ exits loose policy
TOKYO, Feb 14 (Reuters) – Japan’s economy averted a recession but recovered much less than expected in the fourth quarter as business investment slumped, a sign of the challenge the central bank faces as it winds down its massive stimulus package leaves.
As private consumption weathers headwinds from rising cost of living, uncertainties about the global economic outlook will weigh on Japan’s delayed recovery from the scars of the COVID-19 pandemic, analysts say.
The world’s third-largest economy grew an annualized 0.6% in the last quarter of last year after contracting a revised 1.0% in July-September, government data showed on Tuesday.
Gross domestic product (GDP) growth was much smaller than a median market forecast for a 2.0% increase due to a decline in capital spending and inventories.
“From negative growth in July through September, the recovery is not very impressive,” said Toru Suehiro, chief economist at Daiwa Securities.
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“We can expect consumption to pick up if service spending stabilises. But it’s difficult to forecast a strong recovery, partly due to pressures from rising inflation,” he said.
Japan Q4 GDP recovers less than expected
BOJ POLITICAL CHALLENGE
The weak data highlights the tricky task ahead for Kazuo Ueda, the government’s proposed next Bank of Japan (BOJ) governor, as he charts a path to normalizing the bank’s ultra-loose policies without derailing a fragile economic recovery.
Policymakers are hoping that a recovery in consumption, fueled by savings accumulated during the pandemic, will last long enough for wages to pick up and cushion the hit to households from rising food and fuel costs.
With inflation surpassing the BOJ’s 2% target, the outlook for the economy and wages will be crucial in determining how quickly the central bank could phase out its massive stimulus program.
“It may be difficult for the BOJ to normalize ultra-loose policy this year as the overseas economy slows,” said Takeshi Minami, chief economist at the Norinchukin Research Institute.
“The BOJ may have to wait until fiscal year 2024 at the earliest.”
While private consumption rose 0.5% and external demand added 0.3 percentage point to growth, capital spending weighed on the economy and fell 0.5% more-than-expected, the data showed.
Private inventories also detracted 0.5 point from growth as companies saw declining inventories in autos and commodities.
RECESSION RISKS
For the full year, the economy grew 1.1%, compared with a 2.1% increase in 2021, the data showed.
Japan has seen a surge in overseas visitors since the end of some of the world’s tightest border controls to prevent the spread of the COVID-19 pandemic in October.
Economy Minister Shigeyuki Goto told reporters the economy was on the road to recovery as the impact of the pandemic eased.
“Rising inflation and the global slowdown are risks,” he said after the data release. “But corporate spending appetite hasn’t cooled…we’re not overly pessimistic about the outlook.”
However, some analysts warn that global headwinds could weigh on the export-dependent economy and derail a weak recovery by preventing manufacturers from raising wages.
“As other advanced economies head for recession, we still expect net trade to pull Japan into recession in the first half as business investment slows faster than we expected,” said Darren Tay, Japan economist at Capital Economics.
Reporting by Leika Kihara and Tetsushi Kajimoto; Additional reporting by Eimi Yamamitsu; Edited by Shri Navaratnam
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