Japan’s economy outperformed expectations in the fourth quarter, fueled by a surge in exports.
Yet, beneath the surface, domestic demand remains fragile, casting doubt on the sustainability of growth.
Preliminary government data released Monday showed a 0.7% quarter-on-quarter GDP expansion, more than double the 0.3% economists polled by Reuters had anticipated.
On an annualized basis, growth hit 2.8%, far outpacing the 1% estimate. Capital expenditure inched up 0.5%, falling short of the expected 1% rise.
The headline figures may suggest resilience, but analysts warn against premature celebration.
Speaking to CNBC’s Street Signs Asia, Stefan Angrick, associate director and senior economist at Moody’s Analytics, said that while the headline numbers “all look great,” it is not all “sunshine and rainbows.”
He pointed out that historical data revisions masked underlying weakness, and without them, GDP would have contracted.
Exports delivered a lifeline, with net trade buoying growth as imports declined. However, that underscores the core issue: sluggish domestic consumption.
Angrick noted, “That speaks to the weakness in domestic demand, which is really the story we’ve been dealing with over the last two to three years… people probably want to be careful and maybe keep the champagne on ice. It’s probably not the time to celebrate.”
Japan’s household spending reflected this trend, shrinking in October and November before rebounding 2.7% in December—its first increase since July 2024.
Citi economist Katsuhiko Aiba warned earlier this month that consumer spending will remain weak in the first quarter of 2025, forecasting a full-scale recovery after the second quarter.
He said that real wage growth is likely to remain negative in the first quarter as well, despite government energy subsidies resuming, pressured by pass-through inflation from yen depreciation.
Even with a stronger-than-expected fourth quarter, Japan’s full-year GDP growth slowed to a mere 0.1% in 2024—a steep drop from 1.5% in 2023.
The business sector faces uncertainty as policymakers navigate economic challenges.
The Nikkei 225 dipped 0.29% following the data release, while the yen strengthened 0.2% to 152.02 against the dollar.
With the Bank of Japan raising rates to their highest level since 2008, policymakers now face a balancing act: supporting a delicate recovery without stifling it.
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