Japan’s Economy Beats Expectations, Avoids Recession
Japan’s economy surprised economists by expanding at an annualized rate of 0.4% in the final quarter of 2019, according to revised GDP figures. This growth exceeded the initial estimate of a 0.4% contraction and the median forecast of a 1.1% uptick in a Reuters poll.
The revised GDP figure allowed Japan to avoid a technical recession, with strong spending by companies on plants and equipment driving the growth. Capital expenditure increased by 2.0% quarter-on-quarter, surpassing the government’s preliminary announcement of a 0.1% decrease.
However, private consumption, which makes up 60% of Japan’s economy, fell by 0.3% in the October to December quarter. In addition, Japan saw inflation-adjusted real wages shrinking for the 22nd consecutive month in January, with household spending dropping the most in 35 months.
External demand contributed 0.2 percentage points to real GDP, unchanged from the preliminary reading. There are growing expectations that the Bank of Japan may abandon negative interest rates, as some members suggest Japan is moving towards the central bank’s inflation target of 2%.
The BOJ is set to hold a policy-setting meeting on March 18 and 19 to discuss the current economic situation and potential policy changes. The central bank’s next steps will be closely watched as Japan continues to navigate economic challenges both domestically and internationally.
