TOKYO: Japan’s economy expanded an annualised 2.8% in the October-December quarter, government data showed on Monday, backed by improved business spending and better-than-expected consumption.
Strong domestic demand is helping support a recovery in the world’s fourth-largest economy, even as U.S. President Donald Trump’s tariff threats fuel concerns about the export outlook.
The positive figures will also likely support the Bank of Japan’s plan to keep hiking interest rates and normalise monetary policy.
“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,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
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The increase in gross domestic product compared with a median market estimate of a 1.0% gain in a Reuters poll, and followed a revised 1.7% growth in the previous quarter.
The reading translates into a quarterly rise of 0.7%, better than the median estimate for a 0.3% uptick.
Private consumption, which accounts for more than half of economic output, rose 0.1%, compared with a market estimate of a 0.3% fall.
A surprise positive reading in consumption is attributed to large year-end bonuses, said Kazutaka Maeda, an economist at Meiji Yasuda Research Institute. “It may slip again in January onwards as the underlying trend remains weak amid rising prices of food,” he said.
Uichiro Nozaki, economist at Nomura Securities, said the overall GDP figure was flattered in part by a decrease in imports, which improved the net trade contribution to growth.
Consumption and wage trends are key factors the BOJ is watching to gauge economic strength and determine the need for additional rate hikes.
While the latest wage and household spending indicators showed encouraging signs, analysts have been wary of price pressures hindering a full-fledged recovery in personal consumption.
Capital spending, a key driver of private demand-led growth, rose 0.5% in the fourth quarter, missing a market estimate of a rise of 1.0% in the Reuters poll but reversing a decline in the previous quarter.
Net external demand, or exports minus imports, contributed 0.7 of a point to growth, reversing a negative contribution in the July-September period.
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