Japan’s economy outpaced forecasts in the fourth quarter, driven by a surge in exports. However, economists caution that the numbers may not be as strong as they seem, with domestic demand still showing signs of weakness.
Key Takeaways
- Japan’s GDP grew 0.7% in Q4, exceeding the 0.3% increase economists predicted.
- Exports provided the main boost, while domestic demand remained sluggish.
- Capital spending rose by 0.5% quarter-on-quarter, falling short of the 1% growth expected.
- Annual GDP growth hit 2.8%, well above the 1% forecast but driven largely by statistical revisions.
- The Bank of Japan (BOJ) raised interest rates to 0.5%, the highest level since 2008, setting the stage for further policy tightening.
A Closer Look: Real Growth Or Statistical Illusion?
Stefan Angrik, deputy director and senior economist at Moody’s Analytics, warned against reading too much into the numbers. Speaking with CNBC, he noted that the economy only appears to be expanding due to historical data revisions. Without them, Japan’s GDP would have shrunk in Q4.
Follow THE FUTURE on LinkedIn, Facebook, Instagram, X and Telegram
“Exports have been the key driver, while imports declined—highlighting the same weak domestic demand we’ve seen over the past two to three years. Maybe hold off on the champagne for now,” Angrik cautioned.
Looking Ahead: Caution Over Consumer Spending
Economists remain wary about Japan’s economic momentum in early 2025:
- Citi’s Katsuhiko Aiba predicts that consumption will remain weak into Q1 2025, with a full recovery likely only after Q2.
- Real wage growth is expected to stay negative, even as the government reinstates energy subsidies.
- Consumer spending saw a 2.7% jump in December, the first increase since July 2024, but prior months showed contractions of 0.4% (November) and 1.3% (October).
Despite the Q4 surprise, full-year GDP growth for 2024 came in at just 0.1%, a steep drop from 1.5% in 2023. Following the data release, Japan’s Nikkei 225 dipped 0.29%, while the yen strengthened by 0.2% to 152.02 per dollar.
With mixed signals from the economy, policymakers and investors will be watching closely to see whether Japan’s growth is truly sustainable—or just a statistical mirage.
