Japan's economy showed signs of strength in the last quarter of 2024, expanding at an annualized rate of 2.8 percent. This growth was driven by increased business spending and better-than-expected consumer demand, indicating a robust recovery despite global uncertainties.
Japan 's economy expanded at an annualized rate of 2.8 percent in the October-December quarter of 2024, according to government data released on Monday, February 17th. This growth was fueled by increased business spending and stronger-than-anticipated consumer demand. The positive figures suggest a robust recovery in the world's fourth-largest economy, even as President Donald Trump's tariff threats cast a shadow of uncertainty on the export outlook.
The Bank of Japan is likely to find support for its plan to progressively raise interest rates and normalize monetary policy.Marcel Thieliant, Head of Asia-Pacific at Capital Economics, stated, '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.' The increase in gross domestic product surpassed the median market expectation of a 1.0 percent gain in a Reuters poll and followed a revised 1.7 percent growth in the previous quarter. This translates to a quarterly rise of 0.7 percent, surpassing the median estimate of a 0.3 percent increase.Private consumption, which constitutes over half of economic output, rose by 0.1 percent, defying market projections of a 0.3 percent decline. This positive surprise in consumption is attributed to substantial year-end bonuses, as explained by Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. 'It may slip again in January onwards as the underlying trend remains weak amid rising food prices,' he cautioned. Uichiro Nozaki, an economist at Nomura Securities, noted that the overall GDP figure was partly inflated by a decrease in imports, which favorably impacted the net trade contribution to growth.The Bank of Japan is closely monitoring consumption and wage trends as key indicators to assess economic strength and determine the necessity for further rate hikes. While recent wage and household spending data presented encouraging signs, analysts remain cautious about price pressures potentially hindering a full-fledged revival in personal consumption. Capital spending, a crucial driver of private demand-led growth, rose by 0.5 percent in the fourth quarter, falling short of market expectations of a 1.0 percent increase in the Reuters poll but reversing a decline in the preceding quarter. Net external demand, calculated as exports minus imports, contributed 0.7 of a point to growth, reversing a negative contribution in the July-September period
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