Japan averts recession in Oct.-Dec. with 0.4% economic growth

TOKYO (Kyodo) — Japan escaped a recession in the October-December quarter and instead grew at a revised annualized rate of 0.4 percent on strong capital spending, but weak private consumption is clouding the economic outlook, government data showed Monday.

Real gross domestic product, adjusted for inflation, was revised upward from an earlier reported 0.4 percent drop, a positive development for the Bank of Japan as financial markets expect it to end its negative interest rate policy this month or in April.

Despite the upward revision, Japan still lost its status as the world’s No. 3 economy to Germany in 2023, more than a decade after it fell to third place after China. Japan’s nominal GDP totaled $4.21 trillion, outpaced by Germany’s $4.46 trillion.

GDP is the total value of goods and services produced in a country. The Cabinet Office said real GDP grew 0.1 percent from the previous quarter, against an earlier reading of a 0.1 percent decline.

“A technical recession was avoided and the BOJ will likely end its negative rates. But private consumption was weak and the economy will likely see negative growth in January to March,” said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.

A technical recession is defined as two straight quarters of contraction.

The government has maintained that the economy is recovering at a moderate pace. But domestic demand, particularly private consumption, has lacked vigor as rising prices for everyday goods have weighed on households.

Private consumption, which accounts for more than half of the economy, fell 0.3 percent, more than an earlier reading of 0.2 percent. It marked the third straight quarter of decline, with consumers yet to feel real wage growth due to accelerating inflation.

That weakness was offset by growth in capital spending, which jumped 2.0 percent, an upward revision from a 0.1 percent drop.

Economists are closely monitoring how much Japanese companies will use their cash to invest in equipment to boost output and in automation and related technologies to cope with labor shortages.

Another focal point is the pace of wage growth this year, a critical factor in supporting consumption.

Strong domestic demand is key to achieving the BOJ’s 2 percent inflation target combined with wage growth. The central bank is seen by financial markets as moving away from its ultraloose monetary policy.

“Robust results are expected out of this year’s ‘shunto’ wage negotiations, but it will take time for consumers to feel the actual benefits. We believe the economy is at a standstill and whether private consumption can hold up until wage growth can be felt later this year is a concern,” Kobayashi added.

The outcome of annual pay negotiations at major companies will be announced in mid-March, ahead of the BOJ’s two-day policy-setting meeting from March 18.

The Cabinet Office made no changes to its growth figures for exports that expanded 2.6 percent and imports that rose by 1.7 percent.

Public investment fell 0.8 percent, against an earlier reported 0.7 percent decline.

The economy grew 0.5 percent, or an annualized 2.1 percent, when not adjusted for inflation. The figures were revised upward from preliminary readings of 0.3 percent and 1.2 percent, respectively.